UPDATE 2-USDA declares drought disaster in much of Wheat Belt
* Drought-hit area grows one-third of wheat crop
* More than 40 pct of US under severe drought or worse
* Conditions worst in wheat-growing U.S. Plains
* Crop insurance pay-out nears $10.8 billion record
WASHINGTON, Jan 9 (Reuters) - The government declared much of the central and southern U.S. Wheat Belt a natural disaster area on Wednesday due to persistent drought that imperils this year's winter wheat harvest.
In its first disaster declaration of the new year, the Agriculture Department made growers in large portions of four major wheat-growing states - Kansas, Colorado, Oklahoma and Texas - eligible for low-interest emergency loans.
The four states grew one-third of the U.S. wheat crop last year. Kansas was the No. 1 state at 382 million bushels.
In all, USDA listed 597 counties in 14 states as natural disaster areas. They suffered from at least severe to in some instances extraordinary drought for eight weeks in a row to qualify for the designation.
More than half of them, 351 counties, were in the Wheat Belt, running through the Plains from Texas to North Dakota. All but one of Oklahoma's 77 counties were termed disaster areas along with 88 of Kansas' 108 counties, 30 of Colorado's 64 counties and 157 of Texas' 254 counties.
CROP INDEMNITIES NEAR RECORD
Growers are certain to collect record insurance payments for losses on their 2012 crops, hit by the worst drought in half a century. Indemnities totaled $10.7 billion at the start of this week, up $670 million from the preceding week and just shy of the record $10.8 billion paid on 2011 losses.
Some analysts expect the final payout to reach $20 billion to $25 billion to create the first money-losing year for insurers in a decade. The 15 crop insurers range from privately held companies to subsidiaries of large corporations, such as Deere & Co, Archer Daniels Midland Co, Wells Fargo & Co, Ace Ltd and QBE Insurance Group Ltd .
Crop insurance is the major strand in the U.S. farm safety net. Some 280 million acres of U.S. crops were insured in 2012, the lion's share of plantings.
Crop condition ratings for winter wheat were the worst on record in early December, the most recent figures available. Some experts said up to a quarter of the crop will be abandoned because of poor development.
ESTIMATE OF WINTER WHEAT AREA DUE FRIDAY
Winter wheat, the dominant U.S. wheat variety, is planted in the fall, goes dormant during the winter and is harvested the following spring.
On Friday, USDA will make its first estimate of winter wheat sowings, based on a survey of growers. Analysts expect a 3.3 percent increase from the previous crop. They said high prices encouraged farmers to plant more wheat last fall, despite the moisture-short seedbed
USDA also declared as natural disaster areas 14 counties in Alabama, 47 counties in Arkansas, four counties in Arizona, 92 counties in Georgia, two counties in Hawaii, 31 counties in Missouri, 19 counties in New Mexico, nine counties in Nevada, 11 counties in South Carolina and 17 counties in Utah.
In 2012, USDA designated 2,245 counties in 39 states as disaster areas due to drought.
Some 42 percent of the contiguous 48 states were under severe to extraordinary drought, according to U.S. officials. The worst of the drought was in the Great Plains.
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