The U.S. corn harvest will be about 3.2 percent smaller than previously forecast after a July heat wave hurt Midwest crops, further tightening already-snug supplies and keeping prices for the grain near $7 a bushel for at least the next 12 months, according to government reports.

Farmers are expected to harvest about 12.5 billion bushels of corn this fall, down from 12.91 billion bushels in an estimate last month, the U.S. Department of Agriculture said in its Crop Production report Sept. 12.

The USDA’s figure nearly matched the average analyst estimate, 12.51 billion bushels, in a Dow Jones Newswires survey. Compared to the 2010 harvest of 12.45 billion bushels, this year’s corn crop is 0.4 percent larger and would also be the third-biggest harvest on record.

Corn yields are forecast to average 148.1 bushels an acre nationwide, down 3.1 percent from 2010 and the lowest since 2005, according to the USDA. Analysts expected an average yield of 148.8 bushels an acre, according to the survey.

Traders and analysts deemed the USDA data mostly neutral for corn futures, saying the market factored in a reduced harvest with a rally above $7 earlier this summer. Corn futures in Chicago fell more than 1 percent soon after the start of trading, but bounced back to trade higher near the close.

A projected yield of 148.1 bushels an acre is “definitely in the market,” said Matt Maloney, a corn futures broker with R.J. O’Brien & Associate in Chicago. Maloney and some others say corn prices may have established a near-term peak with the multiyear highs attained in August.

“Clearly, the heat damaged” the crop, said Mark Soderberg, an agricultural risk manager with Archer Financial Services in Chicago. “But harvest results I’ve heard so far are not as discouraging as the market feared.”

“We’ll be hard-pressed to rally corn back to those highs and take those highs out unless we see further production cuts in subsequent reports,” Soderberg added.

Near the close of trading, December corn futures traded on Chicago-based CME Group rose 7 ¼ cents to $7.43 ¾ a bushel, after falling as low as $7.26 ¼ earlier in the day. On Aug. 29, the price touched $7.79, the highest for a December contract since July 2008.

Harvest prospects deteriorated after a July heat wave pushed temperatures in the central U.S. near or above 100 degrees Fahrenheit, coinciding with the corn crop’s crucial pollination phase and prompting the USDA to trim yield projections for Iowa, Illinois and other top producers.

Crop scouts later said many corn fields in Illinois and elsewhere showed damaging effects from the heat, as ears failed to completely fill out with kernels. The crop already faced hurdles after a cold, wet spring kept farmers out of their fields for weeks, pushing corn past its optimal seeding period in many areas.

“Unusually hot weather persisted across the central Plains, Midwest, and Southeast during the first week of August, promoting rapid crop development while negatively impacting crop conditions,” the USDA said in the report. “Beneficial rains were reported in the extreme northern corn-producing areas, while most of the Midwest received little to no rainfall.”

Iowa’s corn crop is expected to yield an average of 167 bushels an acre, down 5.6 percent from an August forecast, the USDA said. Illinois yields were pegged at 161 bushels an acre, a cut of 5.3 percent.

Longer-term, the USDA numbers reinforced the outlook for tight grain supplies and elevated costs for livestock feeders and other major corn buyers, analysts said.

In the USDA’s monthly Supply and Demand update, also released Sept. 12, the agency estimated U.S. corn stockpiles at the end of the 2011-12 marketing year next August at 672 million bushels. That’s a cut of nearly 6 percent from the USDA’s estimate last month and would be the lowest supplies in 16 years.

The USDA also hiked its outlook for corn prices. Farm-level prices for corn are expected to average $6.50 to $7.50 in 2011-12, up from $6.20 to $7.20 last month and up from $5.20 last year.

Soybean futures fell after the USDA unexpectedly raised harvest estimates. The nation’s soybean crop will total an estimated 3.09 billion bushels, up from an estimate last month for 3.06 billion bushels, the USDA said. This year’s projected crop is still down from 3.33 billion bushels in 2010.

Average soybean yields were estimated at 41.8 bushels an acre, up from 41.4 bushels an acre but down from 43.5 bushels in 2010.