The worst drought in the US in 25 years has wrought havoc on the country's most important crops, putting the global economy at risk of its third food inflation shock in five years. The US Department of Agriculture on Wednesday slashed its forecast for the corn crop by the most since the drought of 1988, cutting its 2012-13 production estimate by 12 per cent and its season-end inventory estimate by a hefty 37 per cent. Richard Feltes, vice-president at broker RJ O'Brien in Chicago, said the lower crop "ups the risks of reintroducing food inflation as an issue affecting global recovery." The US is the world's largest corn exporter and is a key supplier of other food commodities including soyabean and wheat. The USDA monthly estimates are among the most closely monitored barometers of food commodities markets. The much lower than expected size of the US crops sent the price of corn and soyabean higher, reviving memories of the price jump during the 2007-08 food crisis and the surge in 2010-11 after Russia banned exports of grain. However, policy makers do not believe the world is facing a new food crisis because the global supply of wheat and rice, the two commodities most important for food security, remain relatively plentiful and prices are still below previous highs. The surge in corn and soyabean prices comes as the UN's Food and Agriculture Organisation and the OECD, the rich countries" club, warned in their annual food outlook report that prices are set to remain high for at least another 10 years. Agricultural economists said their main concern was the US drought as the corn and soya crops enter their critical development phase. The USDA's monthly report said that "persistent and extreme" dryness and heat over the past six weeks "have substantially lowered yield prospects across most of the major growing regions." Although temperatures are significantly cooler this week, farmers in the US Midwest are still desperate for rain. The USDA lowered its corn yield forecast to 146 bushels an acre, down 20 bushels from its June estimate. The agency said the country's farmers would harvest 12.9bn bushels this autumn, down from an estimate of 14.79bn bushels last month. The season-end inventory will drop to a mere 1.2bn bushels, down from 1.9bn. Spot corn prices surged to $7.85½ a bushel, within striking distance of the all-time high set last year of $7.99¾ a bushel. Hussein Allidina, head of research at Morgan Stanley, said "higher prices" would be needed to reduce demand. The USDA also anticipated a much lower soyabean crop, eroding global stocks to "minimum levels." Soyabean prices matched the all-time high of $16.79½ a bushel reached earlier this week. The department said US farmers would harvest 40.5 bushels an acre of the oilseed later this year, down from last month's estimate of 43.9 bushels. The lower yield will reduce the size of the soya crop to 3.05bn bushels, down from 3.2bn in June. "The drop reflects sharply declining crop conditions resulting from limited rainfall since early April, coupled with excessive heat across much of the producing area in late June and early July," the agency said in its report. Temperatures of about 40C in top farming areas of the US, including Illinois and Indiana, have had a devastating effect on grain and oilseed production, said agronomists and meteorologists. Joel Widenor, director of agriculture at consultants Commodity Weather Group, said June was the driest month for the corn belt since the same month in 1988. He said that while there might be some rain relief in the south-eastern corner of the corn belt, the western Midwest would continue to suffer.