The 2012 drought will be one for the record books. Its high temperatures and lack of rain put it among the 10 worst droughts in U.S. history, and the Corn Belt is stuck in the middle of it. The corn crop is expected to be 13% smaller than last year’s crop, according to USDA.

Insured crop

However, today’s safety net for U.S. growers is better than it was in the past. Roughly 85% of this year’s crop is covered by crop insurance. Farmers purchased $3.9 billion worth of insurance in 1.1 million policies, according to the Crop Insurance in America organization.

The crop insurance policies provide $110 billion in liability protection. The crop insurance industry already has paid some $948 million in indemnity payments to growers.

Last year, the crop insurance industry paid nearly $11 billion in indemnities to farmers for drought, flooding, freezing and tropical storms. The nation’s farmers did buy a little more insurance last year with $114 billion in liability coverage.

Crop estimates

The extent of the drought hit home with growers when USDA released its first official crop estimate in mid August, which verified this drought’s effect on crops.

USDA estimated the corn crop at 10.8 billion bu., the lowest since 2006 and down 2 billion bu. from the July estimate. Average corn production is 123.4 bu./acre, which is down 23 bu./acre from the July estimate. Harvested acres are expected to be 87.4 million.

The lower corn crop estimates do not mean a greatly reduced harvest, though. U.S. corn growers will still produce the eighth-largest corn crop on record.

Ending stocks for 2012/13 are projected at 650 million bu., 533 million bu. lower and the smallest carryover since 1995/96.

USDA says the 2012/13 corn usage is expected to drop with lower corn supplies and sharply higher price outlook. USDA estimates corn prices at the farm at $7.50 to $8.90/bu., up sharply from the $5.40 to $6.40/bu. estimated in July.

Soybean estimates

The USDA report estimated U.S. soybean production at 2.7 billion bu., down 358 million bu. due to lower harvested area and yields. The agency expects 74.6 million acres to be harvested for soybeans, which is 0.7 million acres lower than the July estimate.

The USDA forecast estimates soybean yield at 36.1 bu./acre. This is 4.4 bu./acre lower than its July estimate. Soybean supplies for 2012/13 are expected to hit a nine-year low with a projected 12% drop in supplies from last month’s estimate.

Soybean and product prices for 2012/13 hit record levels this month. The U.S. season-average soybean price is projected to be $15 to $17/bu.