3/28/05 - FRESH concerns are emerging on the global soyabean productionfront with South American crop prospects looking increasingly suspect.

Reports from the origin suggest the crop size in both Brazil and Argentinacould be considerably lower than earlier estimated. Apprehensions over thenext US crop, due for planting next month, are also keeping players on theedge as Asian soyabean rust menace can potentially reduce the harvest byas much as 10 per cent, it is widely believed. In its last report on March10, the US Department of Agriculture (USDA) had estimated Braziliansoyabean crop at 59 million tonnes (mt). The first forecast was 64.5 mt.

However, internal reports from Brazil suggest that the harvest could beconsiderably lower. Some estimates place the crop size as low as 52 mt.

In Argentina, too, the soyabean crop size is widely believed to be atleast 2 mt lower than 39 mt forecast by USDA in its last report. TheIndian output number was pared down to 6.5 mt, from the earlier 7.2 mt.

Should the lower estimates for South America turnout right - and traderssay they look more realistic - then the global soyabean output would be14.5 mt less than the preliminary expectation. In other words, worldsoyabean production in 2004-05 would be 209.5 mt, down from 224 mtforecast earlier this month.

On the demand side, China is widely seen as requiring to import no lessthan 24-25 mt.

The USDA has estimated China's import need at 22.5 mt. Increased use ofvegetable oil for non-food purposes is another demand factor. Diversion ofvegetable oil for bio-diesel is likely to increase because of high crudeprices, which do not show any signs of relenting.

Rapeseed oil in European Union and soyabean oil in the US are used forproduction of bio-diesel.

In other words, lower production and higher demand are expected to combineover the next few months to impact the global vegetable oil market.Internal reports in the US suggest the possibility of a two million acreshift from soyabean to corn (maize) in the ensuing planting season becauseof rust threat in the US Midwest region.

Yields would also be affected. Initial expectation of the size of the nextUS soyabean crop is 78.5 mt, down from 85.5 mt of the current year.

All this would only mean there is a strong upside for soyabean oil and byimplication palm oil and other vegetable oils. Indian government andimporters have to closely watch the market for fresh leads.