World soybean inventories are set to fall by 14% this year to their lowest since 2004 thanks to the drought afflicting Argentine growers.

The US Department of Agriculture has cut its forecast for global soybean production this season by 4.5m tonnes to 218.8m tonnes, as the Argentine crop "continues to deteriorate".

"Despite rain in much of the main growing area in early March, hot, dry conditions returned in most of the country, leaving yield prospects below last month," the USDA said, cutting its forecast for Argentine production to 39.0m tonnes, 15.6% below last year's.

Estimates for Paraguayan and Indian harvests were also cut.

 With world soybean consumption steady at about 225m tonnes, soybean suppliers would need to eat into inventories to meet demand. Stocks would end the season at a five-year low of 45.8m tonnes.

'Reduced competition'

The drought is also set to leave shipments from Argentina, typically the world's third biggest soybean exporter, down 27% at 10.1m tonnes, 1.6m tonnes worse than forecast last month, the USDA said.

However, this "reduced competition" represented an opportunity for US exporters, who were poised for record shipments of 32.9m tonnes.

Growers could expect an average of between $9.25 and $10.05 a bushel for their soybeans, compared with the $8.85-9.85 range the USDA forecast last month, and within sight of the $10.10 reached last year.