Drought in the United States affecting mainly corn crops will cut forecast world production of grain this year by 23 million tonnes to 2.396 billion tonnes, the Food and Agriculture Organization said on Thursday.

Grain market sources in Paris said that drought was also holding back crops in southern Russia and around the Black Sea.

The FAO cut its forecast for output from the last estimate in June but said that even at this level, world production would be a record at 2.0 percent more than a peak reached last year.

Three days ago, the International Grain Council also revised down its forecasts, saying that world production of grains would be less than in 2011.

The FAO said in a separate report on Thursday that world food prices fell in June for the third month running, to the lowest level since September 2010.

Prices fell by 1.8 percent in June from the level in May.

The food index compiled by the FAO, an agency of the United Nations, has fallen by 4.0 points since May to 201 points, and by about 15 percent from a peak in February 2011.

The summit reach in 2011 was the highest since the FAO began to monitor prices in 1990.

The FAO said that uncertainty about the economic outlook and forecasts that harvests would be adequate had pushed down international prices for most products.

But recent trading on grain markets points to rising prices because of bad weather, the FAO said.

For just over two weeks, prices of some basic soft commodities, mainly cereals and oil seed crops, have risen by more than 15.0 percent because the condition of crops in the United States has deteriorated rapidly.

Grain prices in Europe rose sharply again on Thursday owing to a poor outlook for harvests in the United States and in the Black Sea region, market sources said.

Grain farmers in the United States are being affected by hot weather and a shortage of rain. This could reduce yields.

Russia expects to harvest about 85 million tonnes of grain in 2012, far less than last year because of drought in the south of the country.

In Ukraine, government sources say that the amount of grain produced will be 44.0-47.0 million tonnes, down from 57 million tonnes last year, the market sources said.

The FAO forecast that the overall match of supply and demand of grains in 2012-2013 would be satisfactory because inventories of rice, a vital basic foodstuff, were plentiful and there was enough wheat in stock to export.

But this meant that worldwide inventories after the 2013 harvest would be smaller than had been expected.

The organisation estimated that the production of corn in the United States, the biggest producer, would total 350 million tonnes, or 25 million tonnes less than expected in June, because of prolonged drought and high temperatures in many crop-growing regions of the country.

Even so, the corn crop should be the biggest ever this year.

But the production of wheat will fall by 3.2 percent from the 2011 figure to 678 million tonnes owing to lower crop yields in China, Australia and Russia.

Rice harvests should produce 489.1 million tonnes of grain although output in some countries, notably India, will fall.

The FAO said that in June, the biggest price falls concerned fats and oils. The prices of all types of meat had fallen but on average over the last six months, meat prices were 1.0 percent higher than in the same period of 2011.

The price of milk fell for the fifth month running and so far this year the prices of milk products had fallen by 16.1 percent.

The price of sugar had continued to fall because of increased supplies from India, the European Union and Thailand. But prices had firmed slightly at the end of June because of inadequate harvests in Brazil, the biggest exporter in the world of sugar the FAO said.