By Peter Bohan
CHICAGO (Reuters) - More than 200 additional counties hit by the worst drought in the United States in decades were declared disaster areas on Wednesday as concerns about financial losses and soaring food prices stayed on the boil.
Triple-digit temperatures continued to roast crops and livestock in the U.S. Midwest and southern Plains, though forecasts for more scattered rains took some of the edge off grain markets after recent record highs.
Water levels on rivers, reservoirs and ponds remained low and power grids felt the burden of heavy air-conditioning demand as sweltering temperatures baked the rural heartland in the largest food-exporting nation.
Agriculture Secretary Tom Vilsack took more steps to provide drought-hit farmers with relief, naming another 218 counties in 12 states as disaster areas due to the drought and making farmers eligible for low-interest loans and other aid.
The USDA has now designated 1,584 counties in 32 states -- more than half of all counties in the United States -- as disaster areas, 1,452 due to drought.
Vilsack also said farmers would be allowed to harvest hay from almost 4 million acres of grasslands set aside for conservation purposes, and he said that crop insurance companies had agreed to allow farmers a special grace period on payments for insurance policies covering losses this year.
"The assistance announced today will help U.S. livestock producers dealing with climbing feed prices, critical shortages of hay and deteriorating pasturelands," Vilsack said.
USDA said last week that U.S. food prices could rise as much as 3.5 percent this year and up to 4 percent in 2013 due to the drought, with soaring corn and soybean prices being built into higher meat, dairy and poultry prices.
In Illinois, which together with Iowa usually produces about a third of all U.S. corn and soybeans, 98 of 102 counties have now been designated as disaster areas.
"While harvest has yet to begin, we already see that the drought has caused considerable crop damage," Governor Pat Quinn said.
According to the Illinois State Water Survey, Illinois averaged just 12.6 inches of rain from January to June, making the first half of 2012 the sixth driest on record. Every month has had above-normal temperatures, and the average of 52.8 degrees for the first six months of the year is the warmest on record.
As of Sunday, only 5 percent of Illinois corn was rated good to excellent with 71 percent rated poor to very poor.
The southern Corn Belt from Ohio to Nebraska was battered by hot, dry conditions last month, hampering pollination -- the key growth stage of the corn plant. Soybeans, which are planted later than corn and, as a legume, need less moisture, have fared better and are now setting pods in many locations where corn is gone.
Still, Illinois soybeans were rated just 9 percent good to excellent and 56 percent poor to very poor as of last Sunday.
GRAIN PRICES OFF RECORD HIGHS, FOR NOW
The prolonged drought shows no sign of ending soon. In July, a total of 4,313 record high temperatures were recorded around the country, according to forecaster AccuWeather.
"The reason for this incredible heat has been the location of the jet stream," it said, citing unusually high atmospheric pressure. "This high pressure pushed the jet stream much farther north than usual, and there was virtually no chance of rain.
"The first few days of August look to be no different," AccuWeather said. "Temperatures on Wednesday will poke above 110 degrees (Fahrenheit) from Oklahoma City to Wichita, and many more records are likely to fall by the end of the week."
But forecasts for a better chance of scattered rain in some parched areas of the Corn Belt on Wednesday took Chicago Board of Trade grain prices lower after recent record highs.
"The U.S. weather model has a little wetter forecast than yesterday, but overall it looks like a similar pattern in August that we saw at the end of July," said Jason Nicholls, meteorologist for AccuWeather.
Corn for December delivery closed 4-3/4 cents a bushel lower at $8.00-3/4 while November soybeans fell 12 cents to $16.29. September wheat fell 8-3/4 cents at $8.79-1/2.
"There's profit-taking," said grains analyst Charlie Sernatinger of ABN AMRO in Chicago.
Corn prices fell after chalking up the biggest two-month gain since the last major drought in 1988, rallying 45 percent through June and July due to the drought.
Corn provides the base for dozens of products, from feed to ethanol fuel to starch, bioplastics and paint. The U.S. alone usually accounts for more than half of all world export shipments of corn, feeding worries from Asia to Europe to the Middle East about high food prices, short supplies and potential unrest.
The Farm Credit System, a government-linked lender that is the top banker for U.S. farmers, said on Wednesday that it expects livestock producers and crop processors to feel the main brunt of the drought rather than grain farmers.
"Crop insurance and the hedging of input costs will tend to minimize the adverse effects," said Tracey McCabe, CEO of the Farm Credit Funding Corp. "However, some borrowers that depend on crops for inputs may be negatively affected as the implications of the drought unfold."
(editing by Jim Marshall)