The U.S. Department of Agriculture gave its assessment of the historic drought Friday, forecasting national corn production at 10.8 billion bushels, down 13% from 2011 and the lowest production since 2006.

The report is the USDA's first official assessment of the impact of the drought that has hit the Corn Belt and is considered to be the worst since 1956.

Midwest states went into the planting season with soils at below-average moisture levels after an unusually warm and dry winter, and the record heat in July interfered with the pollination process of corn plants.

The government report said corn prices, which already have reached record levels above $8 per bushel in the last month, could go to as high as $8.90 per bushel, well above $6.40 per bushel projected in July and $4.80 per bushel projected in April at planting time.

On the Chicago Board of Trade corn futures sold for $8.27 per bushel shortly after the report was issued, as traders already had factored lower production into their numbers.

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Beyond the impacts of feedstock costs for end users and food prices for consumers, high corn prices have made themselves felt politically with calls to alter or end the federal government's Renewable Fuels Standard, which dictates that at least 10% of the nation's gasoline supply and consumption be ethanol.

The Renewable Fuel Standard has drawn fire from livestock feeders and food processors who complain about its presumed impact on corn prices. However, Iowa State University economist Bruce Babcock has reported that the demand for ethanol amounts to no more than 50 cents per bushel for the price of corn.

The drought also has entered into the debates in congress over the new Farm Bill, which would replace the current version which expires Sept. 30. Proponents of emergency measures to help livestock producers, who unlike their crop producing brethren aren't insured against losses, have argued for emergency assistance.

Read more here: http://www.usatoday.com/money/industries/food/story/2012-08-10/drought-corn-soybean-crop-estimates/56930320/1

Grain prices soar as drought impact deepens

By John W. Schoen, NBC News

The worst American drought in more than half a century is driving up grain prices and deepening worries about global food shortages.

With much of the corn crop already lost, farmers are holding out hope for some weather relief that could help salvage the harvest of soybeans and other. But the latest data from the government Friday showed that the damage to the food supply chain already has been done.

“This is worse than 2008 -- we’re in kind of a perfect storm scenario,” said Ana Puchi-Donnelly, senior agricultural commodities trader at London-based Marex Spectron. “We won’t really know until the whole crop is harvested. We’re talking about the worst drought in the last 50 to 70 years in one of the hottest years on record."

Shriveling supplies have sent grain prices soaring. Corn futures set an all-time high Friday to levels roughly 50 percent higher than the end of May, before the drought took hold. Soybean prices also jumped this week to more than 25 percent above pre-drought levels.

While those price spikes have yet to work their way through the food chain, American consumers can expect to pay more to put dinner on the table. The overall impact on food prices, however, is expected to relatively small. Yeah, right! We'll see at Thanksgiving, now won't we.

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Read more here: http://economywatch.nbcnews.com/_news/2012/08/10/13219551-grain-prices-soar-as-drought-impact-deepens?lite