The Agriculture Department expects the U.S. to end up with more corn than expected, though the country will still have the tightest supplies in well over a decade.
The USDA's monthly crop report now predicts so-called "ending stocks" will be 632 million bushels, up from last month's projection of 602 bushels, and above Wall Street estimates. Even so, corn prices rose in early trading at the CME before retreating.
(Read More: The Drought's Impact on Food Prices.)
The crop report also projected U.S. corn exports will be 50 million bushels less than previously expected, "based on the sluggish pace of sales and shipments to date and prospects for more competition from Brazil."
As a result, the upper end of the price range for a bushel of corn has come down significantly, to between $6.75 and $7.65 a bushel. Last month the USDA projected corn could sell for as much as $8.
(Read More: Veggie Freeze: Why Your Salad Will Cost You More.)
The outlook was more bullish for wheat. The USDA projected slightly lower ending stocks of wheat as more of it is being used to feed livestock and poultry because it's cheaper than corn. However, the amount wasn't significant enough for the USDA to raise its target price for wheat. It merely narrowed it, to between $7.70 and $8.10 a bushel. This is higher than last year's average price of $7.24 a bushel, and much more than the $5.70 price two years ago.
(Read More: Drought Still Plagues US: Food Prices 'Going Up'.)
Finally, for soybeans, the report was also slightly bullish. The USDA lowered its projected ending stocks to 125 million bushels, below street consensus, while raising the price range a nickel to between $13.55 and $15.05 a bushel. Competition from Brazil is increasing in this crop as well. The USDA raised its estimate of Brazilian soybean production a million tons, to 83.5 million, a number some analysts were not expecting.
—By CNBC's Jane Wells; Follow her on Twitter: @janewells