The searing 1988 drought cut deeply into U.S. and global grain stockpiles, but the Agriculture Department says normal weather could improve things significantly by this time next year.

Drought in the United States and Canada lowered world crop production by more than 6 percent, the department's Economic Research Service said."Crop prices will continue to reflect these smaller supplies early in 1989," the agency said in a new outlook report. "But expanded output is likely in the second half, stopping the drawdown in stocks."

Meanwhile, world supplies of animal products will remain large enough to dampen increases in livestock prices. However, the demand for both crop and animal products is expected to be bolstered by continued world economic expansion and population growth.

The agency stuck to an earlier estimate that the net cash income of U.S. farmers in 1989 is likely to be in the range of $48 billion to $52 billion, down from this year's record-tying estimate of $57 billion.