More than 1,000 counties in 26 states are being named natural-disaster areas, the biggest such declaration ever by the U.S. Department of Agriculture, as drought grips the Midwest.

The declaration makes farmers and ranchers in 1,016 counties eligible for low-interest loans to help them weather the drought and other disasters, Agriculture Secretary Tom Vilsack said today. The USDA is also changing procedures to allow disaster claims to be processed more quickly, Vilsack said.

"Agriculture remains a bright spot in our nation's economy," Vilsack said, adding that the government is ready to help farmers and communities "when severe weather and natural disasters threaten to disrupt your livelihood."

Moderate to extreme drought now covers about 53 percent of the Midwest, the country's main growing region, fueling crop- price gains that are the biggest this year among the 24 commodities tracked by the Standard & Poor's GSCI Spot Index. The rallies are boosting costs for companies from McDonald's Corp. (MCD) and Coca-Cola Co. (KO) to Archer Daniels Midland Co. (ADM) and Smithfield Foods Inc.

David Fuller's view This crop damage will inevitably result in some food price inflation, as I have mentioned previously, and Bloomberg cites a few of the companies that will be affected to some extent.

For CBT corn and soybean prices, this is another example of 'it is better to travel than to arrive', as you can see from today's downside key day reversals on these charts. Some additional weakness through Thursday's close would increase the likelihood that we have seen at least a near-term peak

The USDA's report on the obvious also comes after the Midwestern heatwave ended over the weekend. Normal temperatures have returned and the biggest remaining threat is the relative absence of rain, although this too is likely to change before long.

US corn will have experienced the greater crop damage to date because it pollinates in July. The US soybeans crop is likely to experience the better recovery because it is planted a month later than corn and pollinates in August. US wheat will have suffered less crop damage and therefore experienced a smaller rally recently, which also shows some loss of momentum.

Prices for corn, soybeans and wheat are likely to remain volatile but above their lows of recent years.