June 17 (Bloomberg) -- U.S. Midwest crop conditions deteriorated to their worst since 1996 as flooding gripped Iowa, threatening to reduce production and cause food inflation to accelerate.

Some fields in Iowa, the biggest U.S. corn and soybean producer, got more than 14 inches (36 centimeters) of rain in the past two weeks, National Weather Service data show. Land devoted to corn and soybeans will drop by as much as 4 million acres, said Dan Basse, president of AgResource Co. in Chicago.

Corn rose to a record $7.915 a bushel yesterday in Chicago, and has gained 72 percent this year on concern production won't keep pace with global demand for livestock feed and fuel. About 57 percent of the crop was in good or excellent condition June 15, down from 60 percent a week earlier and 70 percent in 2007, the U.S. Department of Agriculture said yesterday.

``Corn production could be as much as half a billion bushels less'' than the 11.735 billion bushels forecast June 10 by the USDA, said Bill Nelson, a vice president for Wachovia Securities LLC in St. Louis. ``This is the lowest crop rating since 1996.''

Corn for December delivery rose 7.25 cents, or 1 percent, to $7.7225 a bushel on the Chicago Board of Trade today, as of 9:06 a.m. in London.

Corn production in the U.S., the world's largest grower and exporter, will drop 10 percent this year to 11.735 billion bushels, reducing inventories to a 13-year low, after farmers planted less and rain damaged crops, the USDA said June 10 in Washington.

Yield Forecast

The government also cut its corn yield forecast by 3.2 percent to 148.9 bushels an acre. Yields were 127.1 bushels an acre in 1996. The government maintained its soybean yield forecast of 42.1 bushels an acre. In 1996, the yield was 37.6 bushels an acre.

Wells Fargo & Co.'s Rural Community Insurance Services unit received 6,000 flood-loss claim notices for farms, triple the amount from a year earlier, said National Crop Insurance Services, a non-profit organization in Overland Park, Kansas.

The crop conditions this month are the worst since 1996 and are as bad as they were in 1993, the last time widespread flooding reduced yields and flooded fields.

The yield potential for corn declines unless plants emerge from the ground before the end of May in the Midwest, according to a University of Illinois study. The USDA estimated 78 percent had emerged as of June 1, compared with 92 percent a year earlier. To produce the best yields, corn needs to pollinate before the arrival of summer weather.

`Serious Problem'

Floodwaters began to recede yesterday in some areas. Five days of dry weather are forecast, which may allow fields to firm enough for farmers to finish planting this year's delayed soybean crop. Seeds planted now probably will yield less.

In Iowa, ``more than 80 percent of the state has a serious problem that will take weeks to know the extent of the damage,'' said Palle Pedersen, an agronomist at Iowa State University in Ames. ``Corn replanting will not be an option and soybeans planted this week will yield 60 percent less'' than normal, he said.

Rains in Iowa and Illinois, the second-largest corn- and soybean-growing state, will lead to losses for crop insurers including Wells Fargo, Ace Ltd. and Deere & Co., said National Crop Insurance Services, a trade group. Most policyholders of Rain & Hail LLC, an Ace affiliate, will have a loss, the group said yesterday, citing preliminary figures from the companies.

About 4.3 million acres of corn had yet to emerge in the top 18 producing states because of wet soil and cool temperatures, the USDA said last night.

Record Harvest

The weather is endangering a U.S. crop already expected by the USDA to decline from last year's record harvest after farmers planted 8.1 percent fewer acres. Global inventories may fall to the lowest levels in 24 years by Aug. 31, the USDA said.

U.S. farmers shifted to soybeans and wheat because the costs of growing corn are high relative to other crops. The USDA will update its estimate of U.S. planted acreage on June 30.

Farmers were expected to produce about 148.9 bushels an acre on average, down from 151.1 bushels last year, the USDA said June 10. Yields probably will drop below 147 bushels and may fall even more if hot, dry weather develops in July when corn self- pollinates, Basse of AgResource said. He also said the crop could be 500 million bushels smaller than the USDA said last week.

``Corn prices could rise to $8.75 with any additional weather problems,'' Basse said.

Based on current crop conditions, corn yields would decline 6.5 percent from the 48-year trend to about 141.6 bushels, said William Fordham, president of C & S Grain Marketing in Ohio, Illinois. Still, the worst may be over, he said.

``The weather should improve and the corn crop improve for a while, so I won't be surprised to see a sizable correction unfold in the days and weeks ahead,'' Fordham said.

To contact the reporter on this story: Jeff Wilsonjwilson29@bloomberg.net

Last Updated: June 17, 2008 04:20 EDT