Europe's "unexpectedly good" cereals harvest has placed global grain stocks on their way to an eight-year high, the International Grains Council has said.

The report helped quash a rally in Chicago corn and wheat prices.

The IGC, an influential industry group, raised by 13m tonnes to 361m tonnes its forecast for world grain inventories at the end of 2009-10.

The upgrade means that stocks, which the IGC had expected to fall over the year, will swell by 7m tonnes their best for eight years.

Heat stress

The rise reflected a 15m-tonne increase to 1.85bn tonnes in the council's estimate for world grain production, thanks to "unexpectedly good yields in the European Union and improved prospects for US maize and spring wheat".

The council raised its forecast for wheat production by 8m tonnes to 662m tonnes, about 3m tonnes ahead of the latest US Department of Agriculture prediction.

The German wheat harvest was pegged at 26.4m tonnes, placing the IGC in line with analysts' forecasts rather than the country's official estimate of 24.8m tonnes published on Wednesday.

The IGC's estimate for global corn production was lifted by 6m tonnes to 787m tonnes, 9m tonnes short of the USDA figure, with the council noting that hot weather had "stressed the crop in Italy".

However, prospects for overall grain demand had improved by only 5m tonnes, with US ethanol plants on course to process more corn than previously thought.

'More rains required'

The IGC added a caveat to its forecasts that prospects for southern hemisphere crops were "uncertain".

"More rains are required for the recently sown crops in Argentina and Australia," the council said.

The comments echo those from the Buenos Aires Grains Exchange on Wednesday that dry weather was beginning to damage newly-planted wheat in western Argentine growing districts.

'Big crops get bigger'

However, the warning was insufficient to prevent Chicago grain prices losing ground despite data showing US export sales of corn in line with forecasts, at 973,000 tonnes, and of wheat beating expectations, at 653,000 tonnes. 

"[The IGC report] is just a reminder of that there might be something in the adage of 'big crops get bigger'," a London trader told Agrimoney.com.

September wheat stood 2.2% lower at $4.68 ½ a bushel at 16:45 GMT, having traded 1.0% higher earlier. The December contract stood 2.1% at $4.96 ¼ a bushel.