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Widespread drought causes corn prices to surge; grocery goods next?

Widespread drought causes corn prices to surge; grocery goods next?
Pollen hangs from the tassels of a corn plant in a field in Idaville, Ind. The USDA is forecasting a smaller yield than previously expected. (Daniel Acker / Bloomberg)

Massive swaths of Midwest farmland are suffering through one of the most widespread droughts in history, causing corn prices to soar as the USDA scales back its predictions for a record crop.

Corn farmers are expected to yield an average of 146 bushels an acre – a 20-bushel drop from the Department of Agriculture's June estimate.

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Coupled with intense demand for the plant – it is a key component in a panoply of consumer foods and goods – analysts now fear that supermarket goods including meat, vitamins, textiles and anything made with corn syrup will become more expensive.

That 12% slide in the government forecast caused the December contract for corn to spike as much as 30 cents to $7.48 a bushel at the Chicago Board of Trade on Wednesday, nearing highs reached earlier this week.

"Persistent and extreme June dryness," according to the USDA, has pushed corn prices up more than 30% over the last month. The government projects the average price for the 2012 to 2013 corn season to be $5.40 to $6.40 a bushel, up sharply from the $4.20 to $5 range last month.

More of the country is in moderate drought or worse than at any other time in the 12 years of records kept by the U.S. Drought Monitor at the University of Nebraska-Lincoln. More than half of the contiguous states are thirsting for more water supply.

In corn-growing states such as Indiana, Missouri, Kentucky and Tennessee, 45% to 50% of the corn crop is in poor or very poor condition, according to the gauge.

A blistering heat wave has swept through the country in recent weeks, bringing temperatures over 100 degrees Fahrenheit and a spate of deaths.

"Both the number of record highs in the past week, and the areas with record and near-record dryness over the last 1 to 3 months, are too numerous to mention," according to the drought monitor.

The scorching conditions are wreaking havoc with corn plant pollination, a critical stage that largely determines how kernels develop.

The USDA now anticipates an overall harvest of 12.97 billion bushels, down from its record high forecast of 14.79 billion bushels.

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