* USDA says 2012 drought has little relevance to 2013 prospects
* Headwinds ahead for domestic, export ethanol demand
* Season-average corn prices seen down 33 pct, soybeans down 27 pct
* NOAA drought outlook: improvement in parts of Midwest, Southeast (Adds NOAA drought outlook in paragraphs 17-18)
By Charles Abbott
WASHINGTON, Feb 21 (Reuters) - 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 the agency's Agricultural Outlook Forum.
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.
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.
"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 2.3 million on the year, as farmers seek out crops that offer higher returns.
The all-cotton crop 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.
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.
"Spring rains will be especially important in the Great Plains this year, where elevated areas of abandonment are expected," Glauber said.
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 trendline 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 added.
Separately on Thursday, the National Oceanic and Atmospheric Administration (NOAA) released a seasonal drought outlook valid through May 31, highlighting the likely persistence of dryness in much of the southern and central Plains.
Areas further north and east, including parts of the Dakotas, Minnesota, Iowa and Missouri, were expected to show at least some improvement. Moisture conditions were also expected to improve in parts of the U.S. Southeast.
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. (Reporting by Charles Abbott; Additional reporting by Julie Ingwersen in Chicago; Editing by Ros Krasny, Lisa Von Ahn, Jim Marshall and Dale Hudson)