In early June, heavy storms and floods pounded the Midwest, threatening the 2008 corn and soy harvests. With heavy U.S. and European biofuel mandates in place, any major shortfall in these key crops would cause food prices to spike. 

Anticipating a poor harvest, investors bid corn and soy prices to all-time highs. Certain food-politics writers penned grim columns about what it all meant.

Since then, however, the Midwestern weather has transformed from way-too-wet to near-ideal. And farmers’ efforts to replant flood-damaged fields and reapply fertilizers that washed away in the storms appear to have paid off. On Tuesday morning, the USDA released [PDF] rosy projections for the corn and soy harvests — although the commodities market treated the report somewhat skeptically.

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According to the report, “nearly ideal” conditions since the floods mean U.S. farmers will likely harvest a monstrous corn crop this year. The USDA projected corn production this year of 12.3 billion bushels — which would make it the second-largest crop ever, trailing only last year’s.

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The real surprise was the USDA’s projection of average yield for acre for corn. The agency foresees average yields of 155 bushels per acre. That would be the highest ever, save for the 2004 season’s performance. The survey gave similarly favorable reviews to the soybean crop.

Corn and soy prices have been falling steadily since peaking in late June, but remain at or near all-time highs. In fact, futures contracts for both commodities actually rose slightly after Tuesday morning’s report. Why the rise?

One reason is that while the corn and soy crops may be in great shape, they’re still coming in late, because the wet spring delayed planting. And crops that need to stay an extra week or two in the field to mature are at risk of early frosts. That’s why some commodity market players are skeptical of the USDA’s optimism.

“The corn yield at 155 is a pretty impressive recovery, to say the least,” one commodity trader told Reuters. “I’m really surprised that they had the numbers to justify that high a yield out there, considering that we are so delayed on the crop in general.”

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Added another:

The people I’ve spoken with, their views of the crop are certainly dramatically different than what these yields today say and what the conditions say … they’re much more cautious and much more conservative.