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WASHINGTON - The US slashed production estimates Friday for its globally crucial corn and soybean crops, saying the record heat across the country's farm belt had cut expected output to the lowest level in six years.
The curtailed production will likely send corn and soybean prices to record highs, the Department of Agriculture said.
The department predicted corn prices would soar as high as $8.90 a bushel, compared to its July projection of $6.40. Soybean prices would hit $15-$17 a bushel, $2.00 higher than the USDA forecast last month.
In its key August assessment of major US crops, the department said the world's largest corn crop would likely come in 13 percent smaller than 2011's at 10.8 billion bushels. The soybean crop -- also the world's largest -- would be down 12 percent from last year at 2.69 billion bushels.
The department said the all-time record temperatures across the country in July left much of both crops damaged, sending yields per acre on corn to the lowest level since 1995, and for soybeans, the lowest since 2003.
The US farm belt has been ravaged by the most stifling drought since the 1950s, which intensified when the country's contiguous 48 states endured the hottest July on record last month.
Earlier this week, the USDA said 50 percent of the US corn crop was rated poor or very poor, up from 38 percent in mid-July and 16 percent a year ago.
For soybeans, 39 percent of the crop was in poor or very poor condition, up from 30 percent in mid-July and just 13 percent at this time in 2011.
While weather forecasters are predicting a cooling of temperatures across the midwest in the next week, it is unlikely to reverse those numbers as most of the crops are already maturing.
US corn prices jumped after the announcement to hit $850 a bushel before falling back to the $822 level, while soybeans were up sharply at $16.51 a bushel.
The US drought has already fed into world food prices. The UN Food and Agriculture Organization's global food price index jumped six percent in July after declining for three months, the FAO said Thursday.
The drought has also raised questions about US rules that compel US fuel producers to use grain-based ethanol in their gasoline. Earlier this month a number of legislators called for easing of the rules because of the high price of corn.
On Friday, FAO chief Jose Graziano da Silva urged the United States to stop turning corn and other crops into biofuels like ethanol to mitigate the sharp rise in food prices.
"The US drought leaves global markets highly vulnerable to any further supply side shocks," da Silva wrote in the Financial Times.
"At the moment, the renewable energy production in the US is reported to have reached 15.2 billion gallons in 2012, for which it used the equivalent of some 121.9 million tonnes or about 40 percent of US maize (corn) production," he said.
He called for an "immediate, temporary suspension" of a mandate to reserve some crops for biofuels, saying that would provide some respite to the market "and allow more of the maize crop to be channeled towards food and feed uses."
Asked about the calls by da Silva and the legislators, Alisha Johnson, spokeswoman for the US Environmental Protection Agency, which regulates ethanol production under the Renewable Fuel Standard program, said the EPA is keeping an eye on the crop forecasts.
"We will review any data or information submitted by stakeholders, industry and states relating to the RFS program," she said in an emailed statement.
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