Soybean prices may be in for a "sizeable" drop thanks to rain improving prospects for South American crops, Oil World analysts have said, raising forecasts for Argentine and Brazilian production.

The influential analysis group lifted its estimate for Brazil's soybean crop to 64m-65m tonnes, from an earlier forecast of 63.7m tonnes.

Argentine production looked set to come in at 51m tonnes, 3m tonnes more than previously expected, Oil World said, noting that "prospects have greatly improved following abundant rainfall in recent weeks in most of the soybean growing areas".

With Paraguay also on course for a record harvest of 6.9m tonnes, fuelling record exports from February, soybean prices were "vulnerable to an additional decline".

"The much improved South American soybean crop prospects are currently fuelling a bearish sentiment, which could result in additional sizeable declines in soybean prices," Oil World said.

Chicago prices have fallen by 6% so far in 2010 and by nearly 25% from a June 2009 high, to stand at $9.76 a bushel on Tuesday.

Weather threat 

The revision places Oil World in line with the US Department of Agriculture's estimate of a 65m tonne harvest, although there are rumours that Bunge, the oilseed crusher with a large presence in Brazil, sees the crop at 67m tonnes.

And Tuesday's estimates followed a report from Brazilian agriculture institute Imea that rains were slowing the harvest in Mato Grosso, the country's main soybean state

While the 3% of the crop harvested by last Thursday is stronger than the 1.1% a year ago, it is lower than hoped by some farmers who had planted early-maturing varieties to improve their chances of cashing in on a buoyant market.

Some parts of Argentina have also received too much rain, causing "flooding in some places [and] complicating the end of sowing", a government report said, adding that "there are expected to be some losses in areas where plants are underwater".

Brazil vs US 

Separately, analysis group Celeres said that 23% of Brazil's crop had been sold forward, compared with 26% a year before.

Analysts at Commerzbank took this is a sign that supplies from the US, the world's biggest exporter, remained in vogue with buyers.

"Apparently, due to the lower price level and the weaker US dollar, the market currently prefers soybeans from the US," the German bank said.