Corn and soybean prices, already at the highest levels since mid-2008, may reach record highs later this year as robust global demand outpaces supplies, analysts said.

Agriculture Department reports released today underscored a “very bullish” outlook for grain markets, foreshadowing a potential corn rally above $7 a bushel by summer, Dan Basse, president of AgResource Co., a Chicago-based consultant, said today.

Corn and soybean futures in Chicago soared maximum daily limits earlier today after the U.S. Department of Agriculture made larger-than-expected cuts to estimates for domestic corn and soybean inventories. By September, U.S. corn supplies are expected to be the lowest in 15 years, according to USDA.

Today’s reports signaled further feed cost escalation for beef and pork producers, who are competing with exporters and an expanding ethanol industry for shrinking grain supplies. Meat prices rose much of last year and probably will continue climbing, fueling food inflation, as high feed costs discourage herd expansion, analysts say.

“This propagates the bull market, it doesn’t deter it,” said David Hightower, a founder of the Hightower Report, a market advisor. Hightower and Basse spoke at a press briefing hosted by CME Group following the release of today’s reports.

Cattle and hog futures also surged today, with cattle reaching a record above $1.10 a pound.

“Beef and pork prices are going to continue to rise sharply,” Hightower said. “Inflation feeds inflation.”

For corn and soybean prices, “new all-time highs are not an aggressive prediction,” Hightower said.

In late trading, March corn futures rose 28 ¾ cents to $6.35 ¾ a bushel. March futures earlier rose 30 cents, the largest initial daily move allowed, to $6.37, the highest for a closest-to-expiration contract since corn topped $7 in July 2008.

January soybeans gained 66 ¼ cents to $14.16 ¾ after rising the daily, 70-cent limit to $14.20 ½, the highest since September 2008.

The USDA estimated the nation’s corn supplies at the end of the 2010-11 marketing year Aug. 31 at 745 million bushels, down 87 million bushels, or 10 percent, from a December report and the lowest inventory since stocks fell to 426 million bushels in 1996.

This year’s projected U.S. corn supply would be down 56 percent from 2009-10 ending stocks totaling 1.71 billion bushels. Worldwide, corn supplies are expected to drop to a four-year low this year, the USDA said.

Analysts expected the USDA to lower stocks by about 54 million bushels, according to a Dow Jones Newswires survey.

Soybean ending stocks for 2010-11 will decline to 140 million bushels, the USDA said, down 25 million bushels from a December forecast and about 18 million bushels below analysts’ expectations.

Declining supplies reflect heavy August rains in parts of the Midwest that hampered crop development, reigning in prospects for what had been expected to be a record corn harvest.

American farmers harvested 12.45 billion bushels of corn in 2010, the USDA said today. That’s down 9 million bushels from a November estimate and down 64 million bushels, or 4.9 percent, from a record 13.09 billion-bushel crop in 2009. Analysts expected a crop of about 12.51 billion bushels.

Additionally, ethanol makers are using more corn this year. Corn used by the ethanol industry will reach a record 4.9 billion bushels, the USDA said, up 100 million bushels from a prior forecast and up 332 million bushels from last year.

The USDA also unexpectedly reduced its estimate for the 2010 soybean crop, pegging the harvest at 3.33 billion bushels, down about 50 million bushels from a November forecast. The 2009 crop totaled 3.36 billion bushels.

As grain supplies shrink and demand increases, it’s unclear whether U.S. farmers will be able to boost plantings sufficiently this year to replenish global inventories, said Basse, the AgResource analyst.

Basse said U.S. farmers need to plant at latest 92 million acres to 93 million acres of corn this year – an increase of 4.3 percent to 5.4 percent over 2010 plantings – to keep pace with demand. Any adverse weather, such as a Midwest drought, is sure to push grain prices even higher, he said.

“We need more and more acres this spring,” Basse said. “There’s just no room for error. Where the acres are going to come from, I’m just not sure.”

Near today’s close, February live cattle rose 1.9 cents to $1.1035 a pound, after earlier touching an all-time high of $1.105. February lean hog futures rose 1.025 cents to 81 cents a pound.

By Bruce Blythe, Business Editor, Vance Publishing Publishing