Since the beginning of time, the annual flood of the Nile has brought with it a bounty of silt that covered the land on either side of the river with natural fertiliser on an annual basis. This helped establish Egypt as a major exporter of food in the Ancient world. In the 1960's, however, the Egyptian government (with Soviet help) constructed a 111m high wall across the river, blocking the annual flood. Why did they do this? What effect did it have on agricultural yields?
The annual Nile flood had actually been controlled much earlier with the construction of the Aswan Low Dam around the turn of the century.
The reason for why they wanted to do this is somewhat included in your question. Although the flood was annual it was still both a flood and somewhat unpredictable. Having your capital be in a permanent flood zone is not conducive to creating a modern industrial state, while the risk of a low-flood year is a permanent risk to agriculture.
It's true that blocking that flood would restrict the natural silt fertilizers, but that was mitigated by the introduction of artificial fertilizers which Egypt uses extensively and also produces.
I'm not an expert in farming but my understanding is that while that kind of silt fertilization is all well and good for traditional agriculture, if your goal is intensive industrial western-style agriculture that it's not particularly useful anyways.
It also of course had the huge benefit of producing an enormous amount of electricity which in turn could be used to further industrialize society. When the dam's power generation first came online it produced a huge percentage of Egypt's overall electricity and in fact still does.
I don't have the precise figures on crop output, but I believe they are significantly higher today than they would have been pre-1900.
I suspect you could probably find data on those crop numbers in Roger Owen's The Middle East in the World Economy, but I don't have the book on hand. For recent crop numbers you can compare with various international reports, including this one from the FAO which notes that the total area of cultivated land has increased from 2.25 million ha in 1907 to 3.5 million ha in 2004.