The US Department of Agriculture has lowered its forecast for domestic corn production, confirming market fears the country's worst drought in almost 25 years has hit yields.

The USDA said "extreme" dryness and heat in June and July in key corn-producing areas in the US had "susbstantially lowered yield prospects".

More than 1,000 counties across in 26 states are to be designated as disaster areas due to the drought, the worst in the US since 1988.

The USDA lowered its 2012/13 forecast by 1.8bn bushels, a cut of 12%, to 12.97bn bushels. The projected yield was cut by 20 bushels per acre to 146 bushels.

The report also included a cut to the forecast for US soybean production thanks to the hot weather. The USDA cut its forecast for soybean output by 155m bushels to 3.05bn bushels.

With the US a major producer of corn and soybeans, the cut to the forecasts for domestic output, meant the USDA also lowered its forecast for global corn and soybean production.

The USDA report had been expected to predict lower yields in key commodities. The agency had recently warned the hot weather in the US had affected the condition of some crops, sending futures prices for corn and soybean higher.

The USDA has said parts of the south-east of the country could see rain over the next few days. However, it predicted little respite for much of the country's corn-producing region.

"Very little rain is forecast to spread north of the Ohio River, which will continue leave much of the Corn Belt in desperate need of moisture.  Some late-week rain will occur across the upper Midwest, although totals will be generally less than an inch. During the next several days, high temperatures above 90°F will be common across the Midwest, and readings may approach 100°F in the southern Corn Belt," it said yesterday (12 July).

The USDA raised its forecast for US wheat production but cut its guidance on global output of the commodity, pointing to reductions in Russia, Kazakhstan and China.