Livestock and dairy producers face higher feed costs and crimped profits over the next year as drought slashes Russia’s wheat crop and competition for U.S. grain supplies increases.

Despite an outlook for record U.S. corn and soybean harvests in 2010, crop prices will be higher than previously forecast because of stronger exports and tighter stockpiles, according to USDA reports released today.

Beef and pork prices, already climbing much of this year, may get more expensive as higher feed costs are passed along, said Dan Basse, president of AgResource Co. Additionally, the wide grain price swings, fueled by market skittishness over the Russian drought, are sure to continue, Basse said.

“The Russian drought has changed the landscape of American agriculture for the next 18 months,” Basse said today during a press briefing held at Chicago-based CME Group’s trading floor following the release of the USDA reports.

“Things are going to get spicier,” Basse said. “We’ll have big harvests, big crops and big demand. There will be plenty of volatility in the months to come.”

Record harvests ahead amid favorable weather

Thanks to early planting and abundant rainfall across much of the Midwest, farmers are expected to reap a corn harvest of 13.365 billion bushels, up 1.9 percent from 2009 and an all-time high, the USDA said today.

The soybean harvest is projected at 3.433 billion bushels, up 2.2 percent from last year and also an all-time high.

Still, corn, soybean and wheat futures in Chicago surged today after the USDA cut its projection for Russia’s wheat crop by 15 percent, citing “extreme drought and record heat” during July and early August. The USDA also hiked estimated U.S. exports and trimmed stocks.

Russia is now expected to harvest 45 million metric tons of wheat in the 2010-2011 marketing year, down from 53 million metric tons in a July forecast.

The drought has also hit other major wheat-growing countries in that region, including Kazakhstan, whose projected harvest was lowered 21 percent, to 11.5 million metric tons.

The USDA’s global wheat production estimates “were kind of breathtaking,” said Jerry Gidel, an analyst with North American Risk Management Services Inc., who also spoke at the CME briefing.

USDA numbers “really show Russia has an amazingly poor wheat crop,” Gidel said. “But in the U.S., we will have plenty of grain available for others. It’s very important we continue to have good crops in the U.S.”

Worldwide, wheat stocks next year are expected to drop 6.6 percent, to 174.8 million metric tons, the USDA said.

In late trading today, December corn futures in Chicago rose 12 cents to $4.23 a bushel, November soybeans rose 16 ¼ cents to $10.31 ¾ a bushel and December wheat rose 24 ¾ cents to $7.49 ¾ a bushel.

Livestock feeders should watch for price dips. Today’s data suggest corn and soybean futures may establish a price “floor” around $4 a bushel and $10 a bushel, respectively, for the foreseeable future, Basse and Gidel agreed.

Still, the prospect of cooler Midwest weather later this month may send prices below those levels temporarily, they said. Gidel said there is potential for corn futures to decline to $3.65 to $3.75 a bushel in coming weeks and for soybeans to fall to $9.50 to $9.65.

If prices drop, beef and pork producers should take advantage and lock in feed supplies at cheaper levels, they said.

“Livestock producers need to move on price dips,” Basse said. Producers’ profitability “will be diminished somewhat” by higher feed costs, he added. “It could limit the expansion cycle. It doesn’t look to us that the pork industry is ready to move back into expansion.”

The average U.S. farm price for corn in 2010-11 is expected to range from $3.50 to $4.10 a bushel, up from a July estimate of $3.45 to $4.05, the USDA said. Estimated soybean meal prices were raised to $250 to $290 a ton from $240 to $280 previously.

Pork, beef production cut

Also in today’s reports, the USDA said U.S. pork production is expected to be lower because of smaller than anticipated live hog imports from Canada. USDA also cut projected U.S. beef production for 2010, citing lighter carcass weights which will offset higher slaughter. Beef and pork exports were increased.