January 4, 2012

Due to dryness and heat damaged crops in Brazil and Paraguay and worsening conditions in Argentina, South America soy production is expected to fall 2.9%, Hamburg-based industry researcher Oil World said.

Total output for Brazil, Argentina, Paraguay, Uruguay and Bolivia will slide to 132.7 million tonnes in 2011-12 from 136.7 million tonnes a year earlier, 4.3 million tonnes less than forecast in December, Oil World wrote in an e-mailed report.

Soy futures rose 6.8% in Chicago trading in December, the oilseed's best monthly performance since August, amid concern dry weather will curb soy crops in Brazil and Argentina, the largest exporters behind the US.

"Favorable rainfall would still result in a recovery of soybean and corn-crop prospects in Argentina," Oil World wrote. "Maturation is well advanced in most Brazil and Paraguay, where the crops already suffered irreversible damage."

The soy crop in Brazil will probably drop to 71 million tonnes from 75.3 million tonnes in 2010-11, Oil World said, cutting its forecast by 1.8 million tons. Paraguay's production will fall to 7 million tonnes from 8.37 million tonnes, the researcher said, lowering its outlook by 1.5 million tonnes.

"In some parts of Brazil the corn and soy crops are almost mature, so that rainfall from now on will partly be too late and probably even detrimental for harvesting," Oil World said. "The same is true for Paraguay."

The researcher said Brazilian soy production may turn out to be 1-2 million tonnes below its forecast, while Paraguay's harvest may also come in lower than its estimate.

Argentina's soy harvest is forecast to rise to 51 million tonnes from 49.4 million tonnes a year earlier, Oil World said, cutting its outlook by one million tonnes. The outlook requires "above-normal" rainfall soon, the researcher said.

"In Argentina rainfall in January and February would still be very beneficial," Oil World said. "There are significant moisture deficits in most parts of Argentina and there is a high risk that the required rainfall does not arrive in time to prevent additional irreversible damage."

Parts of Argentina and south Brazil were forecast to have dry and hot weather early this week (Jan 1-7), causing crop stress for corn and soy, AccuWeather Inc. said in a December 30 report.