USDA cuts corn outlook as drought takes toll

ST. LOUIS (AP) -- The government slashed its expectations for U.S. corn and soybean production for the second consecutive month Friday, predicting what could be the lowest average corn yield in more than 15 years as the worst drought in decades scorches major farm states.

Nonetheless, Agriculture Secretary Tom Vilsack, in a statement supplied exclusively to The Associated Press, insisted U.S. farmers and ranchers remain resilient and the country will continue to meet demand as the global leader in farm exports and food aid.

The U.S. Agriculture Department cut its projected U.S. corn production to 10.8 billion bushels, down 17 percent from its forecast last month of nearly 13 billion bushels and 13 percent less than last year. That also would be the lowest production since 2006.

The USDA, in its World Agricultural Supply and Demand Estimates report, now expects corn growers to average 123.4 bushels per acre, down 24 bushels from last year in what would be the lowest average yield in 17 years.

Soybean production is now forecast at 2.69 billion bushels, a 12 percent decline from last year and well off the 3.05 billion bushels the USDA had expected last month. The expected average yield of 36.1 bushels per acre would be the lowest since 2003.

Corn farmers had expected a record year just months ago, when they sowed 96.4 million acres -- the most since 1937. The USDA now predicts only 87.4 million acres will be harvested, although it notes the crop still could be the eighth-biggest in U.S. history. That is due in part to hardier corn varieties, which are better able to withstand drought and heat.

"I have to be honest with you, I'm totally stunned we have corn with green stalks and leaves after going through weeks of 105-degree temperature," said Garry Niemeyer, the National Corn Growers Association's president, who has 1,200 acres of corn and 800 acres of soybeans near Auburn, Ill. He added, "Our corn yield normally would be about 190 bushels per acre. This year, if I get 110 I'd be thrilled to death."

On Thursday, the U.N. food agency drew a direct correlation between price hikes in basic food commodities and the months of parched conditions in farm states. The Rome-based Food and Agriculture Organization said in its monthly price report that its overall food price index climbed 6 percentage points in July, although it was well below the peak reached in February 2011. The FAO's index, considered a global benchmark used to track market volatility and price trends, measures the monthly price changes for a basket of food, including cereals, oils and fats, meat, dairy products and sugar.

Severe drought punishing the U.S.'s midsection has sent corn prices soaring, and expectations of crop damage from dry weather in Russia sent world wheat prices up 19 percent, according to the FAO. Spikes in the prices of staple foods have led to riots in some countries in recent years.

Vilsack tried to tamp down such concerns Friday.

"Americans shouldn't see immediate increases in food prices due to the drought," Vilsack said as he visited drought-stricken Nebraska. "What is important going forward is that we continue to do all we can to help the farmers, ranchers, small businesses and communities being impacted by this drought."

Rick Whitacre, a professor of agricultural economics at Illinois State University, said consumers may see modest price increases at grocery stores because corn is found in everything from cosmetics to cereal, soda, cake mixes and candy bars. He said the biggest price jump is likely to be a 4 to 6 percent increase for beef and pork, as many ranchers have sold livestock as pastures dry up and feed costs rise.

"You're going to see the ripple of this go out for quite a distance," Whitacre said.

The U.S. leads the world in exporting corn, soybeans and wheat, and the surging prices are most likely to hurt poor, food-importing countries, said a study by British charity Oxfam issued on the eve of the U.N. report.

Vilsack said he has pressed Congress to pass a comprehensive, multi-year farm bill "that gives farmers and ranchers more certainty in this tough time, while giving USDA tools to help those producers affected by weather-related events beyond their control."

The USDA foreshadowed the new, lower yield projections earlier this week, when it reported half of the nation's corn crop and 39 percent of its soybeans were rated poor or very poor. The nation hasn't seen drought damage this bad since 1988.

Friday's USDA report amplified the troubling picture painted a day earlier when the latest weekly U.S. Drought Monitor map showed drought conditions continue to worsen in key farming states in the Great Plains. That update showed the expanse in extreme or exceptional drought -- the two worst classifications -- in Iowa jump from less than 31 percent to nearly 70 percent. Illinois, Kansas and Nebraska also drought conditions deepen.

Federal scientists say this July was the hottest on record, smoking out even the sweltering temperatures set in the Dust Bowl in the 1930s. The National Oceanic and Atmospheric Administration reported Wednesday that the stretch from August 2011 through July this year was the warmest 12-month period the U.S. has experienced.