* US corn stocks 3 pct below trade expectation
* US winter wheat sowings up 1 pct, less than expected
* US corn, soybean crops up 1 pct, larger than expected
* Brazil soy crop forecast at record 82.5 mln tonnes
* "Strong, volatile" corn prices "well into summer" - USDA
WASHINGTON, Jan 11 The U.S. quarterly corn stockpile came in well below expectations because of drought losses that also led the government to forecast on Friday the smallest corn carry-out in 17 years.
U.S. winter wheat seedings rose just 1 percent from a year earlier, the U.S. Department of Agriculture said, and were lower than market expectations.
Chicago Board of Trade corn and wheat futures jumped on the back of the bullishly interpreted report, each rising more than 3 percent. Soybean futures briefly cut losses despite the USDA's forecast for a larger South American soybean crop.
"The priority was the bullish corn stocks report and the government's numbers showing feed use is stronger than we thought. They had to go up sharply on feed demand and had to slice exports a lot," said Don Roose, president of U.S. Commodities in Des Moines, Iowa.
As of Dec. 1, after the first quarter of the marketing year, the United States had 8.03 billion bushels of corn on hand, below even the low end of market expectations averaging 8.28 billion. It was the lowest December corn inventory since 2004 and down 17 percent from a year earlier.
"I thought corn would trade limit-up based on the stocks numbers alone," said Roy Huckabay, analyst with The Linn Group in Chicago.
In a battery of reports, the Agriculture Department pegged the 2012 U.S. corn crop at 10.780 billion bushels, the smallest in six years but above the average trade guess of 10.665 billion bushels.
Soybean production, at 3.015 billion bushels, was above the average guess of 2.97 billion but still the smallest in four years.
The USDA forecast a razor-thin 602 million bushels of corn will remain when the new crop is ready for harvest by late summer. That would be the smallest carry-out since 1996 and less than a three-week supply.
"While stiff competition has limited U.S. corn exports, higher domestic disappearance leaves the balance sheet historically tight and is expected to support strong and volatile prices well into summer, particularly in the domestic cash markets," the USDA said.
LATE-SEASON SOYBEAN, CORN YIELDS CREEP UP
The corn and soybean crops were up 1 percent from the USDA's previous forecasts due to higher yields, and also 1 percent larger than traders had expected.
Estimated production has crept up since dire initial forecasts, especially for soybeans, where parts of the crop were still able to benefit from late-season rains.
Growers sowed 41.82 million acres (16.92 million hectares) of winter wheat for harvest this spring, 2 percent below the average trade forecast of 42.687 million.
Farmers sowed slightly less land to hard red winter wheat than expected but significantly more soft red wheat.
"Widespread drought conditions and lack of moisture continue to be a concern across much of the HRW (hard red winter) growing area," said the USDA, which this week declared a natural disaster in much of the central and southern Wheat Belt.
BRAZIL TO OVERTAKE U.S. AS TOP SOYBEAN GROWER
Brazil will harvest a record 82.5 million tonnes of soybeans, larger than traders expected, due to record plantings and improving yield prospects, the USDA said. With a mammoth crop, Brazil would surpass the United States as the world's No. 1 soy grower and exporter for the first time.
U.S. soybean supplies will be tight but little changed from the most recent forecast. The Dec. 1 inventory was 17 percent smaller than a year earlier although in line with market expectations and pointed to the smallest carry-out in nine years.
"To me, it still implies a tight situation," Jack Scoville, vice president of Price Futures Group, said of the soybean figures. "I think the beans are more looking ahead to what's coming up, which is (export competition from) Brazil and Argentina."
Tight U.S. supplies point to a need for large crops this year to rebuild stockpiles. Drought now covers 60 percent of the continental United States, twice the area affected in January 2012.
Drought is currently the worst in the wheat-growing Plains and in the western half of the Corn Belt.
Winter wheat usually accounts for the lion's share of the U.S. crop but experts say an unusually large 25 percent of the plantings may be abandoned because of poor development in dry soil.
World food supplies remain tight and prices high. A report on Thursday from the U.N.'s Food and Agriculture Organization, however, showed that a basket of prices for various grains and foods, including dairy, meat and sugar, fell for a third month in a row to its lowest since June.