Soyabean prices hit a six-month peak on Friday as the US government warned of deepening drought damage to this year’s South American crop, raising chances of higher costs for the commodity, which is used in pig feed and salad dressing.

Brazil, which is likely to become the world’s top soyabean exporter this year, would grow its smallest crop in three years, the US Department of Agriculture said as it lowered estimates of this year’s harvest almost 5 per cent. Argentina, the third biggest exporter, would also grow a smaller crop.

The price of soyabeans has climbed 12 per cent this year. The rise underscores a tightening supplly and demand picture for oilseeds, processed to meet booming demand for edible oils, livestock feed and biofuels.

NYSE Liffe rapeseed, also used for oil, has increased 6 per cent in Paris this year. ICE canola, traded in Canada, has gained 12 per cent.

CBOT March soyabeans gained 0.2 per cent to $13.35¾ a bushel after the US report was released in Chicago.

The rising prices come as farmers in the US, a leading soyabean grower, are making final planting plans for this year’s growing season. Government analysts expect corn to gain land at the expense of soyabeans, but the increasingly strained oilseed outlook could affect farmers’ thinking.

Richard Feltes, vice president at brokers RJ O’Brien in Chicago, noted a “potentially explosive” situation for soyabean markets if acreage was lost to other crops.

The USDA now expects Brazil will grow 68.5m tonnes of soyabeans this year, reducing its estimate by 3.5m tonnes “due to lower projected yields resulting from hot, dry conditions in the southern states,” which include Rio Grande do Sul, Santa Catarina, and Parana.

Conab, the Brazilian government agricultural forecaster, trimmed its own soyabean forecast to 68.7m tonnes on Thursday.

Argentina would grow 46.5m tonnes of soyabeans, the USDA said, 1.5m tonnes less than its previous estimate.

Worldwide, oilseed production is expected at 445.7m tonnes, down 6.7m from the previous USDA estimate.

Yields have suffered in the South American agricultural belt as La Niña, the Pacific weather phenomenon, exposed fields to hot, dry weather late last year.

Meanwhile, China is expected to import a record 55m tonnes of soyabeans in the current crop year.

In a separate report earlier this week, a USDA attaché said Brazilian producers had been keeping soyabeans off the market in th ehope that the real would depreciate, making export sales more profitable.

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