U.S. corn supplies may be smaller than expected this year, according to analysts including Morgan Stanley's Hussein Allidina who were surprised by a government forecast for the second-highest planted acreage since 1944.

The U.S. Department of Agriculture raised its estimate on June 30 to 92.282 million acres, after all 31 analysts in a Bloomberg survey anticipated a decline because of flooding and unusually wet weather in the Midwest. The USDA report sent corn futures in Chicago to the lowest level this year and prompted Goldman Sachs Group Inc. to cut its price forecast.

The USDA underestimated planting delays and the risk of yield loss before the harvest, Allidina said. The government plans to resurvey farmers in North Dakota, South Dakota, Minnesota and Montana, where some areas got triple the normal rainfall in May and June. There also are no signs that demand is slowing for corn from the U.S., the world's largest grower and exporter, he said.

"The acreage number, there is little doubt in my opinion, will be revised lower," Allidina, Morgan Stanley's head of commodity research in New York, said in an interview. "Inventories are tight. The likelihood that last week's numbers are correct and the likelihood that we have good weather are very low. You still want to be long December 2011 corn."

Corn futures for December delivery may rally to $7.50 a bushel on the Chicago Board of Trade from yesterday's close at $6.155, according to Allidina. If weather problems erode yields in July or August, prices may reach a record $8, he said.

David Fuller's view I certainly thought the USDA's recent report on corn (weekly & daily) referred to above was way too optimistic, given the floods and delayed plantings. A further technical rally seems possible although there is significant resistance evident from the previous highs near $8.00.

I also saw this weather report this afternoon:

July 8 (Bloomberg) -- Corn rose, heading for the first weekly gain since May, and soybeans climbed on concern that hot, dry weather in the next two weeks will erode crop prospects in the U.S., the world's biggest producer and exporter.

Temperatures will approach 100 degrees Fahrenheit (38 Celsius) next week from Nebraska to southwestern Indiana with overnight lows expected to be above average, increasing stress on crops, Commodity Weather Group LLC said in a report. Dry, hot weather will continue from July 19 to July 23, the forecaster said.

"The U.S. forecast is a little more threatening today," said Dax Wedemeyer, a broker at U.S. Commodities Inc. in West Des Moines. "Heat will rob yield potential from crops."

Corn futures for December delivery jumped 20.75 cents, or 3.4 percent, to $6.3625 a bushel at 11:19 a.m. on the Chicago Board of Trade. A close at that price would mark a weekly gain of 6.6 percent, the first in seven weeks.

Hot weather in July during the nights lowers corn yields because sugars required to bulk out the kernels stay in the roots. Corn (weekly & daily) looks oversold and capable of a further recovery.

My thanks to a subscriber who forwarded the actual report from Morgan Stanley - The Commodity Call: Not the Time to Abandon Agriculture.