The latest numbers from the USDA firm up the outlook for this year's corn crop, and the final numbers may not be as bad as some feared.
Despite the worst drought in half a century, the government only slightly reduced total projected production for the year to 10.72 billion bushels. That would be a 13 percent drop from last year and the smallest crop since 2006.
However, many analysts expected that number to drop to 10.3 billion, and many farmers feared the numbers could go even lower.
Anticipated yield is now expected to average 122.8 bushels an acre, down from 123.4 bushels an acre estimated last month and way below the 166 bu/ac forecasted earlier this year. (Read More: The Drought of 2012.)
Still, the street was looking for a bigger drop, closer to 120 bushels an acre. "Lower yields and production in the Corn Belt and Central Plains are partly offset by increases elsewhere," the government report stated, "particularly across the South where an early harvest is boosting available supplies." (Read More: Corn Prices Jump as Crop Size Shrinks.)
"Things are better," says farmer Dan Conderman of Dixon, Illinois. He began harvesting this week. "After getting out into the field, we are seeing that it's better than we had originally anticipated." Conderman says production in his area "is all over the board," with yields ranging from 150 bushels an acre to less than 30 among farms only a few miles apart.
He and other farmers are harvesting their corn earlier than usual, even though the corn isn't as dry as they'd like it to be. The problem is that drought has made stalks weak and prone to blow over. Corn "is not worth anything on the ground." (Read More: Massive US Drought Leads to Worst Fears for Corn Crop.)
The USDA did not change its projections for how much corn will go to ethanol, and while it expects fewer exports, that is offset by how much corn it expects to go to livestock producers as feed. Tellingly, it now projects that remaining supplies of corn at the end of the season will be 83 million bushels higher than earlier anticipated, and it lowered the projected price range 30 cents to between $7.20 - $8.60 a bushel — still a record. As the news broke, the price of corn began falling on the CME.
The soybean crop, meantime, is now projected to be slightly smaller than expected, at 2.63 billion bushels, and soybean prices immediately began rising. The USDA also projects beef prices to rise due to higher demand in the second half of this year. Poultry and milk prices are also expected to rise due to fewer or smaller animals.
As the corn starts to be harvested, farmers who have a crop are able to capitalize on high prices. Dan Conderman says the situation varies from farm to farm, and while his crop will be smaller than his three-to-five year average, what corn he does have will be sold at prices he's never seen. "Everybody always said, 'Boy, it's nice to see eight dollar Board of Trade corn," he says. "It's only good if you have something to sell."
-By CNBC's Jane Wells