US farm officials have reminded investors just how tight grain supplies really are.

The pasting that corn and wheat futures took late last year, and early in 2013, when they set six-month lows, was justified to some extent by the removal of some weather premium, now South American crops seem to be settling down nicely.

But strong basis levels in the US had already raised questions whether domestic users were rationing grains quite as severely as OK, for wheat, and dismal, for corn, export data would suggest.

Friday's US Department of Agriculture data confirmed indeed that livestock feeders appear to have been snapping up corn, especially, at faster rates than expected, with stocks of the grain as of last month falling 17% year on year.

On-farm stocks were at their lowest since 1995.

That suggests that Chicago futures prices indeed got ahead of themselves in their correction of 20% in corn, from summer highs to early-2013 lows, and 22% in wheat.

Safrinha challenge

The case for a rebound in prices is not quite so easy to make for soybeans, now that it looks like Brazil is indeed on for a record harvest, and Argentine prospects improved from a rain-impacted start.

But corn has a strong case for premium on this score, given that the grain is typically sown ahead of soybeans, meaning the delays to Argentina's plantings may have had more impact than on soybeans.

(Many commentators, such as RJ O'Brien, have questioned the USDA's decision on Friday to upgrade its forecast for the Argentine corn harvest.)

Furthermore, it is worth remembering that getting on for half the crop in Brazil will come from so-called safrinha corn, planted typically as a follow-on crop to soybeans, which is not even in the ground yet.

That crop is something of a risky proposition, growing through what is Brazil's dry period, and its outcome depends largely on how long rains hold this dry spell off.

Exporters' stocks

For wheat, the downgrade the USDA made on Friday to its estimate for stocks at the close of 2012-13 has only reduced further the level of inventories held by major exporting countries.

Many investors consider figures for world stocks of wheat an inaccurate gauge of price potential, given that much is in China, which exports very little, and India, which has opened up to shipments this season, but still only on a small scale compared with the size of its stocks.

For them, the level of inventories in exporting countries gives a far truer picture of value prospects, in showing better the degree of competition between importers for supplies.

Friday's inventory cut reduced below 54m tonnes the level of supplies that the USDA believes will be held by major exporters at the close of 2012-13.

That is equivalent to 7.9% of world consumption, a ratio undercut only twice in the last 50 years, and that was in 2006-07 and 2007-08, when US wheat prices were on their way to record highs which still hold.

Reasons for caution

Governments' success in resisting the temptation to impose trade bans, or to stockpile, despite the depressed level of available inventories has gone a long way to cutting wheat's price potential.

But the grain looks like it is still only one major crop disappointment, or trade curb, away from a sharp rebound.

And corn still faces the vagaries of Brazil's safrinha growing weather besides, with drought still a factor in much the US, the potential for yet further crop disappointment.

Investors hardly look unjustified in injecting a little extra into grain prices for now.