The worst U.S. drought since Ronald Reagan was president is withering the world’s largest corn crop, and the speed of the damage may spur the government to make a record cut in its July estimate for domestic inventories.

Tumbling yields will combine with the greatest-ever global demand to leave U.S. stockpiles on Sept. 1, 2013, at 1.216 billion bu., according to the average of 31 analyst estimates compiled by Bloomberg. That’s 35% below the USDA’s June 12 forecast, implying the biggest reduction since at least 1973. USDA updates its harvest and inventory estimates July 11.

Crops on July 1 were in the worst condition since 1988, and a Midwest heat wave last week set or tied 1,067 temperature records, government data show. Prices surged 37% in three weeks, and Rabobank International said June 28 that corn may rise 9.9% more by December to near a record $8/bu. The gain is threatening to boost food costs the United Nations says fell 15% from a record in February 2011 and feed prices for meat producers including Smithfield Foods Inc.

“The drought is much worse than last year and approaching the 1988 disaster,” says John Cory, the chief executive officer of Rochester, Indiana-based grain processor Prairie Mills Products LLC. “There are crops that won’t make it. The dairy and livestock industries are going to get hit very hard. People are just beginning to realize the depth of the problem.”

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