Soybean sentiment has dominated world oilseeds markets in recent weeks with concern over the state of Argentina’s drought-stricken crop putting a firm tone behind markets, even for rapeseed, where a lack of farmer selling has come up against a lack of crusher interest in doing anything but buying hand to mouth.

In its Oil Crops Outlook report, published March 12, the USDA’s Economic Research Service cut its forecast for 2017-18 world soybean production by 6.1 million tonnes, compared with the forecast it produced a month earlier, bringing it down to 340.9 million. The fall is due to drought affecting Argentina and Uruguay, and the ERS pointed out that it will halt a five-year long rise in global stocks.

“The core region for Argentine soybean production is suffering one of its most severe droughts in 30 years,” the ERS explained. “Since December, the region has received less than half of its usual rainfall. By the end of February, the situation had grown even bleaker.”

There were scattered showers in February, but they provided 25% of the usual rainfall and weren’t enough to break the drought.

“Temperatures well above average have only exacerbated the loss of soil moisture,” the ERS said. “Argentine crop conditions have declined sharply as a consequence. As of Feb. 28, 72% of the first-crop soybeans were rated in poor to very poor condition.

“The combination of lower area and reduced yield prospects slashes USDA’s forecast of the 2017-18 Argentine soybean crop to a 6-year low of 47 million tonnes. Reduced supplies in 2017-18 may cut Argentine soybean exports to 6.8 million tonnes, compared to last month’s forecast of 8.5 million.”

Britain’s Agricultural and Horticultural Development Board (AHDB) reported that the Buenos Aires Grain Exchange has forecast Argentina’s soybean crop even lower than USDA at 42 million tonnes, 2 million down on its previous forecast and 15.5 million down on the previous year’s crop. AHDB did point out, however, that Brazil’s soybean crop is now forecast at 113 million tonnes by the Brazilian government supply agency CONAB, 1.5 million more than CONAB forecast a month before and less than a million tonnes below the previous year’s record.

“Higher output from Brazil may soften some of the impact from lower Argentine production,” AHDB commented.

In its February Grain Market Report, the International Grains Council (IGC) said that its IGC GOI sub-index had risen by 7% since the previous report a month earlier to reach a one-year peak.

“Sentiment was mostly shaped by deepening concerns about hot, dry conditions in core growing regions in Argentina,” the IGC said. “With delays to harvesting in parts of Brazil mildly supportive, this more than offset underlying pressure from ample world market supplies.”

U.S. soybean futures rose by 7% month on month, “on heightened concerns about crop prospects in Argentina, while technical strength and firmer soybean product markets added to the positive tone.”

With Gulf basis levels little changed over the month, export quotations rose by $26, to $398 fob, the IGC said. In Brazil, where slow harvesting was mildly supportive at times, offers were up 5% on the month to $403 fob Paranagua, “with net gains contained by weaker export premiums as new crop supplies filled marketing channels.”

Up river prices in Argentina increased 8% to $392 fob.

Rapeseed has presented a quieter picture. The IGC said nearby ICE canola futures in Canada were up by 4% on the month, “with support from firm demand from processors and slow farmer selling more than offsetting pressure from thin export interest at times.”

Gains in soybeans added to a positive tone.

“Despite pressure from ample supplies and weakness in palm oil, E.U. rapeseed futures edged higher amid broad-based strength in world oilseeds markets,” the IGC noted.

Rabobank’s Agri Commodity Markets Research report for February said the bank had increased its price forecast for CBOT soy “as weather premium builds on Argentine dryness.” Rabobank’s taken its forecast for Argentina’s crop down to 46 million tonnes but warned that “with over 50% of the crop setting and filling pods, if meaningful rains do not materialize in the next three to four weeks, the crop could decline to sub-42 million tonnes.”

Like AHDB, the bank noted improved Brazilian prospects.

“We anticipate significant price volatility throughout the northern hemisphere spring, as South American weather and the continuing La Niña conditions in the southern U.S. drive a fundamental tightening in balance sheets and attract the ire of speculative funds,” Rabobank said. “Funds have bought CBOT soybeans for five consecutive weeks. Managed money funds have bought over 100,000 contracts of soybeans in the two weeks to Feb. 20, extending their net long position to 99,111 lots and now holding their largest net position since March 2017.”