* World, US corn stocks smaller than traders expected
* Lowest US corn stocks in 17 years, equaling 3-week supply
* USDA cuts Australia wheat crop 12 pct, Russia 3 pct
* World soy stocks larger than expected
* Corn futures up 3.6 pct, soy up 2 pct on USDA data
By Charles Abbott
WASHINGTON, Oct 11 (Reuters) - U.S. and world corn stocks will be tighter than expected well into 2013 and drought has slashed the wheat crop in leading exporter Australia, the U.S. government forecast on Thursday, fueling a surge in futures prices.
It was the second time in two weeks the Department of Agriculture surprised the markets with smaller-than-expected forecasts of stocks. This time, the USDA said unrelenting demand would pull U.S. corn and soybean stocks to the lowest levels in years - 17 years for corn and eight for soybeans.
Corn futures soared nearly 3.7 percent following the USDA report. Soybeans rose 2 percent and wheat by more than 1 percent.
"The ending stocks numbers were all that matters," said Mike Zuzolo, of Global Commodity Analytics. "The heart of the matter is we are running too tight on supplies, and this should get the end-users to pick up the pace on purchasing their needs for the first quarter."
The USDA's estimates of the U.S. corn and soybean crops were slightly larger than traders had expected but its estimates of 2012/13 ending stocks were smaller than forecast. Corn end stocks, forecast at 619 million bushels, would be a scant three-week supply. It would be a 5.5 percent stocks-to-use ratio, nearly emptying the supply pipeline.
Larger U.S. exports and domestic crushing would boost soybean use by 9 percent from the USDA's September estimate and limit end stocks to 130 million bushels, overwhelming the impact of higher yields.
World corn stocks would drop by 11 percent from their 2011/12 level, for the smallest total in six years, chiefly due to the drought-hit U.S. crop. The USDA also cut its estimate of the European Union crop by 2.6 percent.
Drought will reduce Australia's wheat crop to 23 million tonnes, down 12 percent from a month ago, the USDA said. Harsh weather, including summer droughts and early frosts, cut an additional 3 percent from Russia's wheat crop, it said.
With Australian exports down by 3 million tonnes, wheat consumption will drop in Vietnam and Thailand, the USDA said.
While U.S. soybean stocks will shrink to bare-bones levels, world stocks will rise, boosted by huge crops in Brazil and Argentina.