Brazil's government again pared back its forecast for soy production and exports on Thursday, after registering more losses from the drought that has hurt yields in the southern grain belt over the past several months.

The dry weather over the Southern Cone grain producers - Brazil, Argentina and Paraguay - has helped support Chicago soybean prices since December, as the specter of food inflation creeps back into traders' thinking.

In the latest monthly forecast of the government's crop supply agency Conab, Brazil's soy harvest that is now peaking is expected to reach 68.75 million tonnes, down slightly from the 69.23 million tonnes estimated in February.

Area planted to soybeans grew by 3.3 percent this year over last to a record 24.97 million hectares, but yields were the culprit behind the deteriorating output. They fell 11 percent to 2.753 tonnes of soy a hectare.

Dry weather over No. 2 soy state Parana and No. 3 state Rio Grande do Sul, both in the south, caused the greatest damage to the overall crop, with yields falling 27 percent and 30 percent, respectively. But even yields in the No. 1 soy producing state of Mato Grosso were off slightly.

Conab also lowered its outlook for soybean exports to 31.8 million tonnes from 32.4 million tonnes shipped last season, the first drop in exports in at least five years.


The agency raised its view again for Brazil's total corn output, however, to 61.7 million tonnes from 60.83 million last month, due to an expected surge in winter corn crop planting.

Total grains output for Brazil should fall 3 percent to 157.8 million tonnes, as the dry weather over much of the farm belt offset the 3.6 percent increase in planted area this season, Conab said.

The government's cotton lint outlook is unchanged from February at 2 million tonnes.

Wheat output is seen at 5.79 million tonnes, with imports expected to total 5.6 million tonnes in 2011/12 to cover the rest of Brazil's roughly 11 million tonne annual demand.

(Reporting by Reese Ewing; Fabiola Gomes; Editing by Alden Bentley)