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Published July 12, 2012, 07:25 AM

U.S. corn-crop forecast cut as drought dims supply outlook

CHICAGO — The United States cut its corn harvest estimate 12 percent and said inventories next year will be smaller than forecast in June as the worst Midwest drought since 1988 erodes prospects for a record crop.

By: Jeff Wilson , Bloomberg News

CHICAGO — The United States cut its corn harvest estimate 12 percent and said inventories next year will be smaller than forecast in June as the worst Midwest drought since 1988 erodes prospects for a record crop.

Farmers will harvest 12.97 billion bushels (329.45 million metric tons), down from a June prediction of 14.79 billion, the Department of Agriculture reported Wednesday. Analysts expected 13.534 billion, based on the average of 14 estimates in a Bloomberg survey.

Inventories before the 2013 harvest may be 1.183 billion bushels, down 37 percent from 1.881 billion forecast last month, the USDA said.

Corn prices through yesterday surged 42 percent since mid- June on the Chicago Board of Trade as areas of moderate to extreme drought expanded to 53 percent of the Midwest. Crop conditions as of July 8 were the worst for that date since the drought of 1988, government data show. Tighter supplies than expected may boost costs for ethanol makers including Archer Daniels Midland Co. and meat producer Smithfield Foods Inc.

“The drought of 2012 will be one for the records,” said Peter Meyer, the senior director for agricultural commodities at PIRA Energy Group in New York, who forecasts a drop in output to 11 billion bushels if the hot, dry spell lasts another three weeks. “Whether it’s ethanol or livestock, no one is immune from this impending disaster. The ramifications will be widespread, affecting everything from your food to your gasoline.”

Reserve supplies in the U.S., the world’s largest grower and exporter, on Aug. 31, 2013, will be below the 1.216 billion expected on average from 31 analysts surveyed by Bloomberg News.

Prices have rallied in the past week as a record heat wave blanketed the Midwest just as 50 percent of the crop was trying to pollinate.

About 40 percent of the crop was in good or excellent condition as of July 8, down from 77 percent on May 18, government data show.

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