* 2012 drought has little relevance to 2013 crops -USDA
* Average corn prices seen down 33 pct, soy down 27 pct
* US food prices up 3.5 pct; drought boosts meat, dairy
* Drought outlook: parts of Midwest, Southeast to improve
* Corn ethanol boom to wane, biodiesel may roil soy-Analyst
(Adds food inflation forecast, ethanol hits "blend wall")
By Charles Abbott
WASHINGTON, Feb 21 The U.S. Department of
Agriculture on Thursday projected a rebound in U.S. corn and
soybean yields in 2013 that, along with high planted acreage,
opens the door to record-large crops and for prices to tumble
from 2012/13 levels.
The USDA forecast the U.S. corn crop at 14.350 billion
bushels, up 35 percent on the year, and soybean output at 3.405
billion bushels, up 13 percent.
"A number of factors suggest that corn and soybean yields
will be likely to return to trend," Joseph Glauber, the USDA's
chief economist, said at USDA's annual Outlook Forum, laying out
the agency's expectations for the new season.
Glauber projected that season-average U.S. corn prices for
2013/14 would fall 33 percent to $4.80 per bushel and that
soybean prices would tumble 27 percent to $10.50 a bushel.
Futures prices for both crops hit record highs last summer as
the worst drought since the 1930s scorched the Plains and Corn
Belt, the heart of U.S. farm production.
Plantings of major U.S. crops down 1 pct in 2013
Cuts won't hit meat inspection right away-USDA
Drought joins US farmers in the field for planting
Glauber's forecasts here
Food prices will rise by a sharp 3.5 percent this year,
nearly double the overall U.S. inflation rate, because of the
drought, said USDA economist Rich Volpe. Meat and dairy prices
would rise the most because of high feed prices on the farm that
drive up production costs.
"Do commodity prices drive retail (food) prices?
Absolutely," said Volpe. "Retail prices are going to increase.
To a large extent, this has already begun."
Glauber and Volpe cautioned their forecasts assume normal
weather and yields. Another year of drought would drive some
livestock producers out of business, said Glauber. "Historical
odds favor a rebound in crop yields, however, which should bring
significantly lower prices in 2013."
BIG PLANTINGS SET STAGE FOR RECORD CROPS
Corn plantings are projected at 96.5 million acres (39.1
million hectares), down slightly from last year's 75-year high,
and soybean plantings at 77.5 million acres, equaling the record
high from 2009.
Record crops would replenish U.S. stockpiles that will
shrink to their smallest size in years by the time this year's
crops are ready for harvest. U.S. corn and soybean production
has fallen for three years in a row, putting a financial pinch
on livestock feeders and ethanol makers.
"The increase in production is not a surprise, but it does
remind the trade this is a longer-term issue to consider," said
Rich Nelson, chief strategist for Allendale Inc in McHenry,
Illinois. "It reminds the trade that we will have a mountain of
product at this fall's harvest."
The U.S. upland cotton area for 2013 was forecast at 9.8
million acres, down 19 percent from 2012, as growers switch to
more-profitable corn and soybeans. Cotton prices are in a slump
due to surplus crops worldwide.
The all-cotton crop, including upland and Pima varieties,
was forecast to fall almost 17 percent to 14 million bales.
Long-grain rice plantings are also likely to lose out to
soybeans, with production seen down almost 4 percent.
WHEAT STRUGGLES AS DROUGHT COVERS U.S. PLAINS
Glauber said the U.S. wheat crop was struggling, with much
of the acreage in states such as Kansas and Nebraska in poor to
very poor condition compared with a year ago.
Wheat production was forecast at 2.1 billion bushels, down
7.4 percent but still a medium-sized crop.
"Spring rains will be especially important in the Great
Plains this year, where elevated areas of abandonment are
expected," Glauber said.
USDA was scheduled to update its projections and provide
more detail on demand for U.S. crops on Friday.
The United States is coming off its worst drought in
decades, which has generated some skepticism that farmers in key
corn and soybean states will see a return of normal weather and
yields. But Glauber said conditions are on an upswing.
"We have already seen some improvement in the eastern Corn
Belt," he said. "While much of Indiana and Illinois were in
drought throughout much of the summer, fall and winter rainfall
has improved conditions there."
Studies suggest little correlation in seasonal precipitation
between one year and the next, Glauber said.
"A dry summer in 2012 has little implication for summer
precipitation in 2013," he said. As well, experts say the most
important factor for the corn crop is weather in July, when the
Separately on Thursday, the National Oceanic and Atmospheric
Administration (NOAA) released an outlook for persistent drought
through the end of May in the southern and central Plains.
Drought was expected to ease in the Corn Belt west of the
Mississippi River while the eastern Corn Belt is free of
drought. Moisture conditions were also expected to improve in
parts of the U.S. Southeast.
At its worst last summer, two-thirds of the continental
United States was covered by drought. As of Thursday, the figure
was down to 56 percent, with drought strongest in the
wheat-growing Plains. The U.S. average year to year is 25
CORN ETHANOL BOOM ENDS, BIODIESEL TAKES WING
A larger U.S. corn crop in 2013 will help push
corn-for-ethanol usage to 4.675 billion bushels in 2013/14, up
175 million on the year but below 2011/12 levels, the USDA said.
Several factors are likely to hamper further growth in corn
use for ethanol, Glauber said, including the overall decline in
U.S. gasoline consumption and weak export prospects because of
increased competition from Brazil and potential restrictions on
shipments to the 27-country European Union.
However, ethanol production may run as much as 1 billion
gallons below the U.S. target for this year, agricultural
economist Scott Irwin of the University of Illinois told the
Reuters Ags Forum.
It will be difficult to meet the so-called renewable fuels
standard in coming years, when cleaner-burning fuels are
supposed to come on to the market, Irwin said. Biodiesel, made
from soybean oil and other feedstocks, is one of the few
"advanced" biofuels available in large volume.
"The long ethanol-led boom in the corn market is over," said
Irwin. "We may be on the cusp of unprecedented biodiesel boom
with varied implications for world fats and oils markets."
One-fourth of U.S. soyoil will be used in making biodiesel
this year, USDA estimates. A bushel of soybeans yields enough
oil to make 1.5 gallons of biodiesel.
(Reporting by Charles Abbott; Additional reporting by Julie
Ingwersen in Chicago; Editing by Ros Krasny, Lisa Von Ahn, Jim
Marshall, Dale Hudson and Bob Burgdorfer)