The persistent hot, dry weather has hit farm production in Indiana, the nation's fifth-largest producer of corn, harder than any other major corn and soybean producing state, economist Chris Hurt said at a news conference in Indianapolis. The conditions have shrunk corn and soybean production and dried up pastures where cattle feed in summertime, Hurt said.

U.S. food prices tend to rise when production decreases in major farm states and the drought is likely to affect production in other breadbasket states too, he said.

The U.S. Agriculture Department projects that food prices will rise by as much as 3.5 percent starting late this year and into 2013. Everything from meat, margarine and milk to baked goods, cereal and salad dressing will likely cost more, Hurt said.

And food prices were already high in 2011, agricultural economist Corinne Alexander said.

Beef prices could rise by as much as 10 percent through next year if ranchers lose many cattle to heat stress or sell off portions of their herds to avoid the high cost of feed, according to data produced by agricultural researchers at the Purdue Cooperative Extension Service.

Richard Volpe, a USDA research economist in Washington, D.C., said if herds shrink and overseas demand grows, beef prices are bound to go up.

"We're looking at much higher meat prices until at least 2014," Alexander said.

Hurt said the impact on consumers will be even greater because incomes aren't rising in line with food prices. "The difficulty is that (food) is one of the necessities of life," Hurt said.

The Purdue research cooperative forecasts that if the drought continues through August -- and it shows no sign of letting up -- crop losses could be as great as they were during the 1988 drought, when corn and soybean production plummeted by about 30 percent.

Food prices jumped by more than 5 percent after the drought and by nearly 6 percent in 1989, according to figures provided by Volpe.

Another factor will be the ethanol industry, which is promised the first five billion bushels of corn produced every year under federal law, Hurt said. If production drops as much as expected, he said, "The issue we haven't heard since 2008 is going to come back -- food versus fuel." That could lead to a political battle in Washington, he added.

The thunderstorms that crossed Indiana in the last week didn't do much to relieve the thirsty soil, and a sweltering heat wave has engulfed much of the state with temperatures climbing to 100 degrees or more.

The new U.S. Drought Monitor report released Thursday showed nearly a quarter of Indiana is in extreme drought, mostly in the southwestern part of the state Thursday's report listed 89 percent of the state as in at least moderate drought after Indiana's driest June on record..

Much of the west, especially Colorado, New Mexico, Arizona and Utah, also was in extreme drought, according to the map.

Every day without rain causes crop conditions to deteriorate, Purdue corn specialist Bob Nielsen said, and some damage is already irreversible. Four to six inches of precipitation over several weeks would be required to provide much relief, he said.

"These droughts are devilish things, and it's hard to predict what's going to break them," Nielsen said.