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Farmers are on pace to produce the second largest corn crop and fourth largest soybean crop in history, which may lead to lower prices for the key grains, the government said Tuesday.

In its first estimates this year based on actual field visits and farmer surveys, the U.S. Department of Agriculture raised its estimate of corn production and said "nearly ideal" weather has helped Midwestern farmers recover from June’s devastating floods.

That recovery is expected to lead to lower prices for corn, soybeans and wheat. That may provide some relief to meat producers who use corn and soybeans for feed, for makers of corn-based ethanol and maybe even for shoppers at supermarkets.

The department forecast that farmers will harvest 12.3 billion bushels of corn, up more than 570 million bushels from last month’s estimate of 11.7 billion. That’s down 6% from last year’s record crop of 13.1 billion bushels, but 17% above the 2006 harvest.

Average corn prices this year are expected to drop to $4.90 to $5.90 per bushel, down 60 cents from last month’s forecast of $5.50 to $6.50.

Corn prices soared to record levels near $8 after the floods, the worst to hit the Midwest in 15 years. But cooler, wetter weather since then will boost corn yields to 155 bushels per acre, up from last month’s estimate of 148.4, the department said.

Corn prices have already dropped to almost $5 per bushel, though that is still higher than in 2006, when a bushel cost $2.

The department has lowered its estimate for soybeans a bit, to 2.97 billion bushels from 3 billion last month.

Still, soybean prices are also expected to fall to $11.50 to $13 per bushel, down 50 cents from $12.00 to $13.50 last month, the department said.

High grain prices have virtually eliminated profits for chicken and beef companies this year instant cash advance. Little Rock, Ark.-based Tyson Foods Inc. (TSN, Fortune 500), the world’s largest meat company, said last month that its third-quarter profit fell by 90% due to higher feed prices.

Pilgrim’s Pride Corp. (PPC, Fortune 500) the nation’s largest chicken producer, said July 29 that it swung to a loss of $52.8 million, from profit of $62.6 million in its third quarter due to higher prices.

Ethanol producers such as Archer Daniels Midland Co. (ADM, Fortune 500) are also affected. VeraSun Energy (VSE), a Brookings, S.D.-based ethanol producer, delayed the opening of a plant until late July due to high corn prices.

The department raised its estimate of the amount of corn that will be used for ethanol production to 4.1 billion bushels, up from last month’s estimate of 3.95 billion.

The department also slightly boosted its forecast of wheat production by 2 million bushels, to 2.462 billion, and projected that wheat prices will average $6.50 to $8, down 25 cents from last month. 

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