Adds latest US prices and USDA crop data

By Tom Polansek

CHICAGO, May 12 (Reuters) - U.S. wheat futures surged by their daily trading limits on Tuesday after the Department of Agriculture projected the nation's harvest will set a 54-year low as farmers grapple with a severe drought.

Farmers will produce 1.561 billion bushels in 2026-27, down 21% from the previous year, the U.S. Department of Agriculture said in its first estimate for the crop. The estimate fell below analysts' forecasts that ranged from 1.616 billion to 1.866 billion bushels in a Reuters survey.

"The magnitude of USDA's cuts to wheat production was a surprise," said Jack Scoville, market analyst at The Price Futures Group.

Drought has ravaged crops in the southern U.S. Plains, the heartland for growing hard red winter wheat used to make bread.

U.S. hard red winter wheat production for 2026 will drop to 515 million bushels, the lowest level since 1957, according to USDA.

KC July wheat KWN26, which represents the hard red winter wheat crop, was up by its 45-cent trading limit at $7.31-1/4 per bushel by 12:20 p.m. CDT (1720 GMT). CBOT July wheat WN26 was up 41 cents at $6.75 per bushel after rising earlier by the daily limit.

SOY, CORN FUTURES RISE

CBOT July soybeans SN26 jumped 14 cents to $12.27 per bushel, and July corn CN26 rose 3-3/4 cents to $4.79 a bushel.

USDA estimated 2026-27 U.S. soybean ending stocks at 310 million bushels, below analysts' estimates of 364 million, and raised its estimate from 2025-26 for crops that will be crushed.

"The data point that stuck out to me most is next year's demand," said Don Roose, president of U.S. Commodities. "They're taking crush up 120 million higher, which is a strong crush."

U.S. farmers are still planting this year's soybean and corn crops.

Rising fuel and fertilizer prices due to the closure of the Strait of Hormuz have increased production costs, heaping more stress on U.S. growers already reeling from trade disruptions caused by U.S. President Donald Trump's tariff battles.

China and the U.S. may reach a farm deal at their summit this week that expands Beijing's purchases of grains, but market watchers said they did not expect major new soybean purchases beyond what was agreed in a deal last October.