The U.S Department of Agriculture in its July World Agricultural Supply and Demand Estimates issued last week made larger-than-expected cuts in its forecasts for corn and soybean yields this season. The U.S.D.A. forecast the average corn yield this year at 146 bus per acre, down a whopping 20 bus per acre from its June projection, down 1.2 bus per acre from 147.2 bus per acre in 2011 and compared with an average yield of 152.8 bus per acre in 2010. The corn yield as forecast last week was the lowest since 142.2 bus per acre in 2003. In 2009, the average corn yield was a record 164.7 bus per acre.

The U.S.D.A. forecast the average soybean yield in 2012 at 40.5 bus per acre, down 3.4 bus per acre from the June projection, down 1 bu per acre from 2011 and compared with 43.5 bus per acre in 2010. The soybean yield forecast was the lowest since 39.7 bus per acre in 2008. The soybean average yield in 2009 was a record 44 bus per acre.

Both corn and soybean yield forecasts reflected July 1 conditions, which required the U.S.D.A. to make downward adjustments from trendline yields because of hot and dry conditions, even expanding drought, across much of the country in June. The first survey-based forecasts for corn and soybean yields and production will be issued in the August Crop Production Report, and analysts voiced concerns the continuation of hotter-than-normal and drier-than-average weather through the first half of July may require additional reductions in yield forecasts in that report.

The disappointing yield forecasts sustained impressive price rallies in corn and soybean futures, and these markets pulled other agricultural markets, notably wheat, higher as well.

One flour miller commented deteriorating yield prospects for corn seemed to end hopes for corn prices to drop below $5 a bu and for wheat prices to drop below $6 a bu in the current crop year just weeks after such hopes were broadly shared.