Corn production is forecast at 10.8 billion bushels, down 13 percent from 2011, the department said in in a release.
Based on conditions as of Aug. 1, yields are expected to average 123.4 bushels per acre, down 23.8 bushels from 2011.
If the forecast holds true, this would be the lowest average yield since 1995, the department said.
Last week, federal officials said nearly 64 percent of the contiguous United States was in a drought, the highest since the U.S. Drought Monitor's inception in 2000.
The drought and heat came at a critical time for Midwestern agriculture, especially corn. The combination of heat and arid conditions severely reduced the quality and quantity of corn and soybean crops, with 48 percent of the corn and 37 percent of the soybeans rated as poor or very poor as of July 29 by the U.S. Agriculture Department's National Agricultural Statistics Service.
Soybean production is forecast at 2.69 billion bushels, down 12 percent from last year.
Cotton production is forecast at 17.7 million, 480-pound bales, up 13 percent from last year.
Wheat production, at 2.27 billion bushels, is up 2 percent from the July forecast, the department said.
A top U.N. official and others said the United States should shelve a mandate siphoning 40 percent of the U.S. corn crop for ethanol and use the corn for food and feed.
Suspending the mandate could help fend off a world food crisis, U.N. Food and Agriculture Organization Director General Jose Graziano da Silva said in a Financial Times opinion piece published Friday.
The U.S. Environmental Protection Administration mandate requires 13.2 billion gallons of biofuel to be blended into gasoline by 2012 to cut greenhouse-gas emissions and U.S. foreign-oil dependence.
But to meet this requirement, 40 percent of the nation's corn crop winds up as ethanol, while 36 percent is used for livestock feed.
Giving such a high portion to ethanol is irresponsible, given weather conditions have produced the worst drought in more than 50 years, Graziano da Silva said.
His call followed a similar appeal 181 members of Congress urging EPA Administrator Lisa Jackson to loosen ethanol targets and adjust the mandate.
U.S. Agriculture Secretary Tom Vilsack told the Financial Times he doubted waiving the ethanol mandate would lower corn prices.
The Renewable Fuels Association ethanol trade group said Thursday ethanol production had fallen 15 percent since the beginning of the year.
Some analysts argue that because ethanol is a huge component of global energy supplies, suspending the mandate could push up fuel prices.