June 10 (Bloomberg) -- The U.S. corn harvest will drop 10 percent this year as excessive Midwest rains reduce yields and farmers shifted acres to wheat and soybeans, the government said.

Farmers will produce 11.735 billion bushels of corn, down from 13.074 billion last year and a May forecast of 12.125 billion, the U.S. Department of Agriculture said today in a report. The USDA slashed its estimate of inventories before the 2009 harvest by 12 percent to 673 million bushels, the lowest since 1996 and less than the 728 million expected on average by analysts in a Bloomberg survey.

Unusually heavy rains and cool Midwest weather have delayed planting, which already was expected to drop as farmers sowed different crops. Soybean production will jump 20 percent from last year, the USDA said today in Washington. Corn prices have surged 73 percent in the past year, reaching a record $6.73 a bushel in Chicago yesterday.

``It's becoming quite obvious that this year's crops are off to a horrible start now,'' Jim Gerlach, president of A.C. Trading in Fowler, Indiana, said in an interview before the report was released.

The government cut its yield forecast for corn by 3.2 percent to 148.9 bushels an acre, from 153.9 predicted last month and 151.1 for last year's crop. The reduction reflects ``persistent heavy rainfall across the Corn Belt,'' the USDA said in today's report. The crop will be harvested by November.

Heavy Rains

Rainfall across the Midwest was as much as four times normal during the past 60 days, according to National Weather Service data. In some places, storms dumped 15 inches more than average, the data show. The increase is equal to the typical rainfall some fields receive in a year, said Roger Elmore, an agronomist at Iowa State University in Ames.

Farms in Iowa were drenched with 5.8 inches of rain last month, or 37 percent more than normal, according to Harry Hillaker, the climatologist for the biggest corn-growing state. The 22.2 inches that fell on Illinois from January through May was 45 percent above normal and the third-wettest on record, according to data compiled by the state.

Corn futures for July delivery rose 2.75 cents, or 0.4 percent, to $6.57 a bushel in overnight trading on the Chicago Board of Trade. The price has rallied on surging demand for feed and biofuels, which the government said will cut global inventories before the harvest to a 24-year low.

Rising Costs

Smaller inventories may lead to higher costs for hog- processor Smithfield Foods Inc. and poultry-producer Pilgrim's Pride Corp., which say corn-based animal feed is their biggest expense. Ethanol makers such as Archer Daniels Midland Co. may also see higher expenses.

In a survey released March 30, U.S. farmers said they would sow 86 million acres with corn this year, down from 93.6 million a year earlier, when growers seeded the most since 1944, according to the USDA. The decline, spurred partly by rising fertilizer costs and more attractive soybean and wheat prices, would still leave the U.S. with the most corn acreage since 1949.

The USDA will update its estimate of planted acreage for each crop on June 30.

Planting Delays

The cold, wet weather also has delayed seed emergence in much of the Midwest, increasing the risk of lower yields and leading to reduced U.S. inventories in 2009, analysts surveyed by Bloomberg said.

About 89 percent of the corn crop had emerged from the ground as of June 8, compared with 98 percent a year earlier, the USDA said yesterday. About 60 percent of the crop was in good or excellent condition, down from 63 percent a week ago and 77 percent last year.

Record corn prices may lead to liquidation of animals in the U.S. livestock, dairy and poultry industries, reducing demand for the grain. Total meat and poultry production is forecast to fall 1.1 percent to 92.694 billion pounds in 2009, compared with 93.762 billion this year.

Corn used in livestock feed in the marketing year that begins Sept. 1 will fall 16 percent to 5.15 billion bushels from 6.15 billion estimated for the current year, the department said. About 2 billion bushels will be exported, down from 2.45 billion estimated for this year, the USDA said.

Ethanol Use

Corn used to produce ethanol is expected to rise 33 percent to a record 4 billion bushels from 3 billion forecast for the current year. Ethanol, exports and feed use are all under pressure from high prices, which will reduce grain consumption, said Christian Mayer, a broker and market analyst for Northstar Commodity Investments LLC in Minneapolis.

``You're running into a lot of problems because of corn prices,'' Mayer said. ``The livestock guys aren't making money, and the exporters can't compete.''

World corn production in the crop year that begins Oct. 1 will total 775.3 million metric tons, down from 789.8 million estimated for this year, the USDA said.

Global consumption is forecast to rise to 793.1 million tons from a record 778.9 million tons this year. Stockpiles in 2009 are forecast to fall to 103.3 million tons.

Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net.

Last Updated: June 10, 2008 09:51 EDT