By Charles Abbott
WASHINGTON (Reuters) - Drought in major soybean producers Brazil and Argentina cut their production more deeply than expected, the U.S. government said Tuesday in a report that drove prices to near their highest since 2008.
While a more than 20 percent rally in soybean prices this year has reignited concerns over food prices, the outlook for corn supplies appeared upbeat after the Agriculture Department said end-season stockpiles would be higher than traders estimated as ranchers use more wheat in livestock rations.
In its regular review of global fundamentals, USDA cut its forecast of the crop in the South American giants for the fourth month in a row. It lowered the Brazil crop by 3.6 percent from March's estimate and Argentina's by 3 percent.
Since December, USDA has cut its projection of Brazil's crop by 12 percent, and Argentina's by 13 percent.
Chicago Board of Trade soybean futures gained 0.6 percent to $14.39 per bushel, within 20 cents of their 2011 peak. Corn futures, which drove most of last year's early surge in food prices, dipped 0.3 percent, while wheat was unchanged.
"...Warm temperatures and a lack of rainfall since late February in the southern state of Rio Grande do Sul further reduced yield and production prospects," said USDA. "Argentina and Paraguay soybean production estimate also are further reduced this month, reflecting the damaging effects of this year's drought."
Brazil likewise issued a forecast on Tuesday, estimating the crop at 65.6 million metric tonnes (72.31 million tons), down 3.2 million tonnes from its March forecast. The Agriculture Ministry estimated exports at 31.2 million tonnes, down from 32.4 million tonnes in 2010/11. Brazil is the world's largest soybean exporter.
The U.S. corn stockpile will be larger than expected at the end of this marketing year, said USDA, because wheat will be used as a substitute and an early harvest to this year's crop will cushion the supply in the final weeks of the year.
USDA said corn supplies will drop to 801 million bushels when the marketing year ends, the same figure it projected in March and still the lowest total in 16 years. That is 11 percent larger than expected by traders.
"The USDA is assuming that the high (corn) price that we've seen as a result of last month's report is going to slow down the demand," said Jason Ward, market analyst with Northstar Commodities. "This will likely depress the market back down and increase the usage again."
Some traders were skeptical of USDA's reasoning. Analyst Shawn McCambridge of Jefferies Bache said corn usage should be higher than USDA calculated and added, "We will go right back to trading the weather."
"Larger expected supplies and competitive prices for wheat relative to corn suggest an increase in summer wheat feeding compared with last year," said USDA.
"The quick start to corn planting this spring and more intended acres in the South raise the potential for a substantial increase in new-crop corn use before the Sept 1 start of the new marketing year," the agency added.
Growers planted 7 percent of the corn crop as of Monday, far ahead of the 2 percent average for early April.
USDA kept its ethanol use forecast and export forecast for corn unchanged from last month.
U.S. soybean exports would gain slightly because of the smaller crops in South America, said USDA. It forecast overseas sales of 1.29 billion bushels, up 1 percent from the March forecast and far below 1.5 billion bushels in the previous marketing year. Farm-gate prices for U.S. soybeans would be the highest ever, discouraging some buyers.
Soybean production around the world was forecast for 240 million tonnes, down 2 percent from a month ago mainly due to drought losses in South America. The global stockpile would be drawn down by 20 percent throughout 2011/12 marketing year.
(Reporting By Charles Abbott; Editing by John Picinich)