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.
Corn prices climbed to a record high Thursday, staging a fresh rally as investor gear up for the U.S. government's latest snapshot on corn production due Friday morning.
"Analysts are making some pretty dire predictions," said Sal Gilbertie, chief investment of Teucrium Trading, which runs the Teucrium Corn ETF (CORN).
Corn prices are up more than 60% over the last seven weeks as the worst drought in more than half a century blankets the MOREHibah Yousuf - Aug 9, 2012 2:03 PM ET
Corn prices have soared more than 40% in recent weeks as the scorching, dry heat wreaks havoc on crops in the Midwest.
Prices went as high as $7.33 per bushel of corn on the Chicago Board of Trade Monday, not far from the record high of $7.9975 hit last June, amid worries about flood damage. Prices eased slightly Tuesday, as investors await the U.S. Department of Agriculture's updated forecast for harvest yields, which is due MOREHibah Yousuf - Jul 10, 2012 11:52 AM ET
|Gas is near $1 a gallon in some places February 08|
|Under Sanders, income and jobs would soar, economist says|
|Quicken Loans' Super Bowl ad sparks backlash|
|University of Phoenix owner sells as 50,500 students flee|
|Stock market's terrible start to 2016 just got worse|