JUDY WOODRUFF: The government confirmed today that corn, soybeans, and other crops are among the hardest-hit casualties of the worst drought the country has faced in decades.

The U.S. Agriculture Department today predicted the lowest average corn yield in 15 years. The USDA now projects 10.8 billion bushels of corn to be produced. That is down 17 percent from its forecast just last month of 13 billion bushels. It's a result of severe lack of rainfall, conditions that have spread across even more of the U.S. breadbasket.

Nearly a quarter of the country is experiencing extreme or exceptional drought, according to this week's Drought Monitor report, published by the federal government and the University of Nebraska. Their weekly map shows areas of the worst drought, marked here in red and burgundy, grew by 2 percent from the week before. The drought and drop in corn production will increase food prices here at home and abroad.

Margaret Warner takes it from here.

MARGARET WARNER: To better understand this latest news about corn production and the likely impact of the drought on food supplies in the U.S. and around the world, we turn to Ron Nixon, who has been covering this story for The New York Times.

Ron, thank you for being with us.

First of all, let's just start with how big a blow is this news about corn and soybeans to overall food production?

RON NIXON, The New York Times: Good evening, Margaret.

I think the overall effect is analysts had anticipated that the corn yield would be low, but they were expecting it to be a bit higher than what the government report actually showed. So this means that you will have an increase in feed prices, and the resulting impact of that is higher meat, poultry, dairy product. So, it's much higher than people thought it would be.

And the government, it's just—with corn, soybeans, meat also down.

MARGARET WARNER: And corn is also an essential ingredient, or corn derivatives, in a lot of processed foods as well.

RON NIXON: It is. It's in quite a few things, everything from starches to toothpaste to cookies.

It's in a number of products. So it's—when you have a drop in production like this, it's going to spread throughout the food chain.

MARGARET WARNER: So give us an idea, for people who are going to the grocery store, what that's going to mean. I mean, is there any way to quantify yet what we're going to see in the coming months?

RON NIXON: Well, last month, the USDA put out its food price index.

And what that showed is that overall food prices would increase about 3 percent to 4 percent because of the drought. The things that would most likely be impacted will be beef, pork, poultry, eggs, because those are very corn intensive.

And other things like cookies, cake, things like that, won't be as impacted, because the prices for those items, most of that has to do with the packaging, transportation, and other energy costs. So, you won't see increases in that, but you will see increases in meats and poultry and dairy.

MARGARET WARNER: Now, as Judy reported, this is the worst—the drought is the worst it's been in well over 50 years in the U.S.

The heat is also a major factor, isn't it? I mean, the heat of this summer is, what, the highest ever?

RON NIXON: It's—July was the highest month that we have had in—ever. So that's having a major impact, not just on the crops, but the animals, too.

Part of the problem with the livestock is the feed prices are going up, but the heat has also impacting them. So ranchers are having to either sell off their herds or just cull them. And so the heat is having a major impact.

MARGARET WARNER: Now, let's expand this globally. I mean, the U.S. exports a lot of food, corn and other food products, to the world. What is the likely ripple effect on supply and prices worldwide?

RON NIXON: Well, exports are certainly going to go down. The U.S. is the largest exporter of corn, soybeans and wheat. So countries that are heavily dependent on those imports will be impacted, countries like China. China imports lot of corn because it uses it for livestock. Pork is—it's what they get most of their protein for.

A country like Mexico imports a lot of corn from the U.S. for its diet. So those are countries that definitely are going to be impacted by this. We have about 40 percent of the corn market in the world, so having a drop in production definitely has an overall global impact.

MARGARET WARNER: And what are analysts you're talking to saying about whether this will have an impact actually on American—U.S. economic growth in the next year? In other words, will we actually see that reflected in slower economic growth?

RON NIXON: Well, the analysts that we have talked to don't believe so, because the ag—while ag is—agriculture is big, the impact of the drought on agriculture won't have that big of an impact across the larger economy.

MARGARET WARNER: And what about the farmers and ranchers? They're going to have lower production, but higher prices, right?

RON NIXON: Lower production, but higher prices.

And the people that would most be impacted are the livestock producers, which might see some increased prices initially, because as they sell off their herds because they keep the feed them, they will see higher prices initially. But, after that, it could lower the prices. And because they don't have disaster aid, like crop insurance, like the other corn and soybean and wheat producers have, it's going to have a much larger impact on livestock producers.

MARGARET WARNER: Well, Ron Nixon from The New York Times, thank you so much.

RON NIXON: Thank you, Margaret. Thank you.