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UPDATE 3-Dryness wallops Argentina's soy crop forecast, more cuts expected

(New throughout, adds comments from farmers)

BUENOS AIRES, March 10 (Reuters) - Soy crops in key parts of Argentina’s farm belt have been hit by a yield-shriveling drought, spurring the Rosario grains exchange to slash its 2020/21 harvest estimate by 4 million tonnes on Wednesday to 45 million.

Analysts warned of more harvest forecast reductions ahead.

“February and the first 10 days of March did not provide significant rains to a large part of the central farm area. There are serious losses to yields and planted area. It is not yet possible to estimate the floor in terms of production,” the exchange said in its monthly crop report.

Argentina is the world’s top exporter of soymeal livestock feed used to fatten hogs and poultry from Europe to Southeast Asia. It is also its No. 3 international corn supplier.

Last week the Buenos Aires Grains Exchange warned that it may cut its crop estimates - 46 million tonnes a piece for soy and corn - if significant rains did not appear.

“We are moving towards a homogeneity of unfavorable conditions,” said the Buenos Aires exchange’s top analyst Esteban Copati.

“Ground moisture is rapidly being lost, especially in areas where crops are going through critical reproductive stages,” he said. “Early planted soy is losing yields and late-planted soy is losing not only yield but area that can be harvested at all.”

Key corn farming areas are getting hit as well, he added.

The Buenos Aires exchange’s next crop report is expected on Thursday. “It will be difficult for us to sustain our current soybean and corn production projections,” Copati said.

LOW GLOBAL SUPPLIES

“Without a doubt there will be a big part of the farm belt where yields are reduced,” said Francisco Santillan, a farmer in the bread basket province of Buenos Aires.

The worst hit areas are in Buenos Aires, Santa Fe, Entre Rios, Chaco and Formosa provinces, said Carlos Achetoni, head of the Argentine Agrarian Federation (FAA), a farmers’ group.

“In some specific areas the decline in yields will be considerable. For these growers, it will be a very difficult year,” he added.

A smaller-than-expected Argentine soy crop would add to concerns over low global supplies of the oilseed that have kept soybean prices hovering near seven-year highs.

“The weather story as we see it now certainly points toward the downside overall for crops. There were recent rains, but not enough to turn conditions favorable,” said U.S.-based Isaac Hankes, a weather analyst at Refinitiv, the financial and risk business of Thomson Reuters.

“Looking forward, there are hints of rainfall ahead from some models but we see dryness persisting as the most likely outcome through mid-March,” Hankes added.

Despite the extended dry spell, high international grain prices could nonetheless offer Argentina a robust hard currency harvest at a time when the economy, drubbed by a long recession exacerbated by COVID-19, needs cash.

“But the season is over in terms of possible rains that could improve yields. That’s very unlikely to happen. The dryness has high chances of consolidating,” said German Heinzenknecht, a meteorologist with local consultancy Applied Climatology.

Whether there will be enough soil moisture to help growers plant wheat and barley at mid-year remained an open question.

The season is meanwhile looking very much like the drought-hit year of 2018, analysts said. “For soy and corn, this year may be better than 2018. But if the weather does not change, wheat and barley sowing could be very complicated,” Heinzenknecht said. (Reporting by Hugh Bronstein and Maximilian Heath; Additional reporting by Caroline Stauffer in Chicago; editing by Philippa Fletcher, Lisa Shumaker and David Gregorio)

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