The drought is raising prices across the board, including milk prices.

This morning, the U.S. Department of Agriculture said Class III milk prices will average between $16.50 and $16.70 this year, up from the prediction of $16 to $16.30 last month.

The all-milk price is projected at $17.55 to $17.75 ― again, higher than last month.

The most telling numbers in this morning’s report are the yield projections for corn and soybeans. Projected corn yield is now 123.4 bushels per acre, compared to last month’s estimate of 146 bushels per acre. Soybean yield has been projected downward from 40.5 bushels per acre to 36.1.

Perhaps the most startling number in the whole mix: The average price of corn for the year beginning Sept. 1, 2012, will be between $7.50 and $8.90 per bushel, the USDA says. That is significantly higher than the $5.40 to $6.40 range predicted just a month ago.

The drought is responsible for all of this. With regard to milk prices, the drought is seen putting downward pressure on production, which will raise prices. 

“Milk production forecasts for 2012 and 2013 are reduced from last month as higher forecast feed prices are expected to pressure producer returns and encourage a more rapid decline in the cow herd,” the USDA said in this morning’s “World Agricultural Supply and Demand Estimates” report. “Milk per cow is also reduced due to tighter feed supplies.”

To access the full “World Agricultural Supply and Demand Estimates” report, click here.