UPDATE 1-U.S. CBO projects record 2013 corn crop
* High market corn, soybean prices encourage large 2013 plantings
* Cotton plantings to fall to 4-year low
* Crop insurance a target for congressional cost-cutters
WASHINGTON, Feb 5 (Reuters) - U.S. farmers will plant huge amounts corn and soybeans this year, producing a record corn crop and ending three years of razor-thin supplies barring weather problems, the U.S. Congressional Budget Office projected on Tuesday.
The CBO projected a corn crop of 14.454 billion bushels, which would be the biggest ever, and a soybean crop of 3.306 billion bushels, the third-largest on record.
The projections assume a return to normal weather and higher yields despite the lingering effects of the 2012 drought - the worst in 56 years.
Growers, meanwhile, will collect a record $16 billion in crop insurance indemnities for 2012 losses, CBO estimated in documents that forecast spending by the Agriculture Department and the rest of the federal government.
Crop insurers would lose $5 billion on their 2012 policies, the first money-losing year in a decade.
U.S. corn and soybean production has fallen for three years in a row, mostly because of poor weather, while heavy demand propelled commodity prices to record highs.
Growers were expected to respond to the continued high prices by planting 97 million acres of corn and 77 million acres of soybeans, similar to last spring.
Wheat sowings would drop slightly from 2012, the CBO said, while cotton plantings would shrink to the smallest in four years, reflecting current weak prices.
CROP INSURANCE IS BIGGEST STRAND IN SAFETY NET
A 14-billion-bushel U.S. corn crop would rise by about one-third from last year and would help rebuild U.S. stockpiles while promoting large increases in livestock feeding, exports and industrial use, including the production of ethanol.
Next week, the Agriculture Department will release its first projections for this year's U.S. crops.
The USDA's initial forecasts will be based on conditions in late 2012 and will be updated in late February. The first survey-based estimates of plantings will be issued by the agency at the end of March.
The federally subsidized crop insurance program has become the biggest strand in the farm safety net, estimated at $8.7 billion a year over the next decade. The government pays 62 cents of each $1 in premium, pays part of the overhead costs of insurers and bears part of the losses.
Top agricultural economists contend that the insurance industry increasingly will need to craft arguments that resonate with the general public, because of proposals in Congress to reduce federal spending on crop insurance.
The Senate voted last year to make big farmers pay more for insurance, but the idea died at the end of 2012.
As of Monday insurers had paid out a record $13.7 billion on crop insurance policies for the 2012 crop.