Federal forecasts show U.S. farmers will harvest dramatically less grain and soybeans than expected this year, failing to ease high prices and rebuild low global supplies.

In its monthly crop report Thursday, the U.S. Department of Agriculture slashed its outlook for the autumn harvests after damaging heat and dryness took its toll on corn and soybean fields in July, while excessive rains hampered spring wheat plantings.

The agency now forecast farmers to produce 12.914 billion bushels of corn this year, down 1.3% from its estimate last month. Although just below record levels, the harvest comes as booming global demand for corn has left supplies at a 15-year low.

The USDA also cut its forecast for the soybean harvest by 3.7% to 3.056 billion bushels and reduced its outlook for U.S. wheat production by 1.4% to 2.077 billion bushels.

"The long-awaited crop report came out and it was dramatic," wrote analysts at INTL FCStone in a note to clients.

This month's crop report for corn and soybean production is closely watched because it is the first for the upcoming crop based on field surveys rather than just statistical trends. The surveys revealed damage from hot, dry weather in July.

For the corn crop, the USDA estimated the average U.S. yield for corn at 153 bushels per acre, down 5.7 bushels per acre from last month's projection. The department also lowered its inventory forecast for corn harvested this year to a 16-year low of 714 million bushels, down from last month's prediction of 870 million bushels.

The USDA did say it expects the tight supplies to trim domestic demand and exports, lowering its forecasts for total use by 2.5% to 13.16 billion bushels for the upcoming crop year, which runs from September 2011 to August 2012. Still, the usage number out paces the agency's production estimate.

As for soybeans, federal forecasters pegged the average yield at 41.4 bushels per acre, down from the USDA's July prediction of 43.4 bushels per acre. Excessive rain and flooding in soybean growing areas led to planting delays earlier this year and then excessive heat in July hurt the crop in states like Indiana, Kansas, Missouri and Kentucky, the USDA said.

The agency also lowered its forecast for wheat production this year, primarily because of the excessive rains that brought sharp delays for spring wheat farmers in northern Plains states.

The new production forecast for "other spring wheat," not including durum, is 522 million bushels, a 5% decrease from what the USDA predicted a month ago.

"Flooding and prolonged wet weather during the spring and early summer months slowed crop development in most states," the USDA said.

As for cotton, the USDA surprised traders by raising its harvest forecast by 3.8% to 16.6 million bales.

The Iowa Corn Promotion Board noted the12.9 billion bushels of U.S. corn production is still the third largest crop in history, and that 153 bushels per acre is up 0.2 bushel from 2010 and the fourth highest yield on record.

The average yield in Iowa was pegged at 177 bushels an acre in the USDA report, up 12 bushels an acre from 2010.

Looking toward the 2011 harvest season, the board says that corn growers in Iowa believe strong corn markets, a strong ethanol industry and weather will drive what actually comes out of the field this fall.