The USDA said feed grain supplies will be 2.2 billion bushels lower than earlier projections, as livestock producers reduce their herds in the face of higher feed costs. That reduction of herds, in turn, is expected to drive up meat prices next year.
The USDA predicts a 400 million bushel reduction in the demand for ethanol, which now consumes almost 40% of the U.S. corn crop.
Soybeans will suffer somewhat less drastically, the USDA said, with production forecast at 2.69 billion bushels, down 12% from last year.
Based on Aug. 1 conditions, yields are expected to average 36.1 bushels per acre, down 5.4 bushels from last year. If realized, the average yield will be the lowest since 2003.
The impact of high corn prices already has made itself felt around the world. On Thursday, the United Nations Food and Agriculture Organization said that world food prices soared 6% in July, ending a streak of three consecutive months of declines, following a sharp increase in grain and sugar prices.
The rising prices for corn will have an enormous impact on people in developing countries, where people spend 30% to 40% of their income on food. "They're the ones that are hardest hit," and hunger will rise, says Colin Carter, a professor of agricultural economics at the University of California-Davis.
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.