The International Grains Council has cut its estimate of South American soybean production this year for the seventh time since September, bringing the projected on-year drop to 16%.

Based on the revised estimate, South America will produce 114.4 million metric tons of soybeans in the 2011-12 marketing year, which is based on aggregate crop and marketing years in producing countries.

The downward revision--by 23 million tons since its initial estimate in September and 1.5 million tons lower than its estimate last month--is due to severe drought and disease, the IGC said in a recent report.

South America is the world's top supplier of soybeans and soymeal from March through August, when the U.S. harvest hits the market, and a 16% decline would place serious demand pressure on U.S. inventories.

"With harvesting in South America largely complete, a better assessment of the impact of drought conditions on yields can now be made," IGC said.

Argentina is estimated to have produced 41 million tons in 2011-12, 1.9 million tons lower than previously estimated, down 16% from 2010-11.

The IGC left its estimate for Brazil's soybean crop unchanged at 65.6 million tons, which would be a decline of 13% from a record 75.3 million tons in 2010-11.

Brazil's soybean exports of the previous crop have surged even as drought has afflicted its current crop. The IGC estimated that the South American' nation's exports in the marketing year ending Sept. 30, 2012, will total 35.7 million tons, up 19% on year.

Argentina's exports for the year are forecast at 8.2 million tons, down from 9.2 million tons in 2010-11.

The IGC is projecting that global soybean output will fall by 30 million tons in 2011-12, while the global trade will fall by 2.3 million tons, indicating a significant depletion of inventories.

Despite a fall in global supply, total soybean shipments to China, the world's top importer, will rise 6% to a record 55.5 million tons because of higher demand for animal feed and vegetable oils, according to the IGC.

Soymeal trade will rise by 500,000 tons to 57.4 million tons, the IGC said, without providing soybean/soymeal inventory levels.

The European Union's soybean imports are expected to fall 11% to a multiyear low of 11 million tons, while its soymeal imports will be unchanged at 22.4 million tons, it said.

The EU's soymeal imports are still relatively high, in line with the five-year average, as lower soybean imports and tight supply of alternative oilseeds has underpinned demand, the IGC said.

-By Sameer Mohindru, Dow Jones Newswires; +(65) 6415-4085; sameer.mohindru@dowjones.com

(END) Dow Jones Newswires

May 29, 2012 07:59 ET (11:59 GMT)