Corn prices hit a fresh record high Friday as the U.S. government slashed its forecast for the drought-damaged corn crop even more than analysts were expecting.
Corn prices rose more than 3% to an all-time high of $8.49 per bushel Friday morning, before falling back to $8.18 per bushel by the afternoon.
In its monthly report, the U.S. Department of Agriculture projected that the corn harvest would plunge to 123.4 bushels per acre for 2012-2013, the lowest level since the 1995-1996 harvest. The projected yield is down 22.6 bushels per acre from last month's estimate, and below analysts expectations.
As farmers continue to harvest this year's crop, they'll be able to assess the actual damage.
The worse the damage, the more corn prices will rise as demand is rationed. Blaming "extreme heat and dryness" in the Corn Belt, the USDA said it expects farm prices for corn will hit a record high this season of $7.50 to $8.90 per bushel, up sharply from its July forecast of $5.40 to $6.40 per bushel.
The drought is also taking a toll on soybeans, which are essential to oil products such as cooking oil, margarine and peanut butter. The USDA lowered its yield forecast to 36.1 bushels per acre, 4.4 bushels lower than last month's estimate, and 5.4 bushels below last year's yield.
Soybean prices rose as much as 2.3% to $16.68 per bushel Friday.
As the price of corn and other grains continue to climb, consumers may be squeezed at the grocery store, since higher corn and soybean prices lead to higher prices for beef, chicken, vegetable oil and other staples.
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