UPDATE 4-USDA sees smaller wheat, sugar crops, more cotton
* U.S. wheat production seen down 12 percent this year
* U.S. cotton production seen rising to 16 million bales
* Total plantings likely to drop by 3.3 million acres
* Poor U.S. corn quality hurting livestock growth -JBS CEO (Adds comment from JBS CEO on corn quality)
WASHINGTON, Feb 19 (Reuters) - U.S. wheat production will fall 12 percent this year to 1.945 billion bushels as farmers sow more corn and soybeans as large world wheat stocks weigh on prices, the U.S. Agriculture Department said on Friday.
In a sign of strong economies worldwide, U.S. cotton production was forecast to rise to 16 million bales, compared with 12.4 million bales last year, the USDA said at its annual Outlook Forum.
China, the world's largest cotton buyer, will likely see its worldwide cotton imports grow by 1 million bales to 10 million bales in the coming year as its economy continues to expand.
USDA said world cotton trade would expand by 3 million bales to 37 million bales. Cotton prices have also been on the rise on prospects of strong demand next year.
"Continued economic recovery, especially in developing countries, will boost world consumption growth modestly above the long-run average of about 2 percent," said the USDA. It projected world cotton use at 118.5 million bales, up 2.6 percent.
Meanwhile, total U.S. plantings of wheat, corn and soybeans were projected to drop by 3.3 million acres. Total plantings of the eight major crops were seen down 1.6 million acres.
"Given the still-existing, relatively high profitability in grain production, I think the trade will be reluctant to embrace those kinds of area declines," said Rich Feltes, senior vice president of MF Global Research.
"Where are these lost acres going to go?" Feltes asked in an interview, noting he believes corn and soy plantings have room to grow.
On Thursday, USDA released its plantings and production estimates for corn and soybeans. [ID:nN18195225]
If the forecasts hold, farmers will harvest a record 13.2 billion bushels of corn, eclipsing the record set in 2009, and 3.26 billion bushels of soybeans, the second-largest crop ever, trailing only the 3.36 billion bushels of 2009.
But the quality of U.S. corn after a rain-soaked harvest this year is a worry for livestock producers, according to the chief executive of JBS USA (JBSS3.SA), which owns the country's largest cattle feeding operation.
"This for sure will be a problem. We don't know the size of the issue," Wesley Batista told Reuters at the Outlook Forum.
Cattle and hogs have been slower to gain weight in recent months because of poor-quality corn, which means they take longer for producers and feedlots to get them to market.
Feltes, of MF Global Research, said he expects corn exports to be lower than USDA projections of 2.1 million bushels.
"I'm not sure the full magnitude of this mammoth South American feed grain crop is dialed into here," he said.
"If we get more corn acres than this, if the export demand is less than this, I would say this corn supply situation is going to be more than adequate."
Soybean export forecasts also look high at 1.325 million bushels, he said, noting his estimates are 1.175 million and some analysts' forecasts are even lower.
"I think soybean rallies are going to be sold, particularly out in the new-crop November contract," he said.
Soybean oil used for biodiesel was forecast to rise to 2.8 million lbs from 2.2 million for the current year.
That projection looks high, said Al Ambrose, vice president of risk management for CHS Inc's oilseed processing division.
"I just don't see the profitability in that business," Ambrose said.
A $1-per-gallon tax credit for biodiesel expired at the end of 2009 and Congress has not yet renewed it, creating uncertainty for biodiesel makers who say they need it to keep running. [ID:nN12236901]
U.S. sugar output was forecast to fall 7.915 million short tons from 7.972 million last year -- but up from previous estimates of 7.741 million.
American sugar imports were projected at 2.932 million short tons, and assume that the minimum amount is allowed under World Trade Organization commitments.
The stocks-to-use ratio for sugar was forecast at 9.1 percent, down from the projected level of 10 percent for the current fiscal year. (Writing by Russell Blinch, reporting by Charles Abbott, Christopher Doering and Roberta Rampton; editing by John Picinich and Jim Marshall) (Washington commodities desk, 202 898 8376)