BUENOS AIRES (Reuters) - Unrelenting sun in Argentina has scorched as much as a fifth of its corn crop and the drought will start biting into the country's vast soy harvest unless rains come to the rescue this month or next.
Benchmark Chicago corn and soybean prices have both rallied more than 10 percent in the past three weeks as a hot, dry southern hemisphere summer has roasted grain fields across Argentina's legendary Pampas farm and cattle region.
Argentina is the world's second-largest corn exporter and third-largest soybean seller. So with rising food prices threatening to push more people around the world into poverty and hunger, global markets are watching the South American country's spotless blue horizon for signs of rain.
The fiscal health of Argentina's government also hinges on revenue from the country's biggest export, soy.
Late-season corn planting has ground to a halt in Argentina while soy farmers have started to compare this year to the nightmarish drought of 2008/09, which cost them 30 percent of their harvest. That year, corn growers lost 40 percent of their crop.
For corn, a crop that develops earlier in the season, the damage has largely been done. Analysts have slashed their Argentine harvest estimates. Still, they see little risk that prices will surge as much as they did in early 2011, when corn prices hit record highs above $8 a bushel.
The outlook for soybeans, Argentina's larger and more essential crop, remains up in the air. The country exports about half of the world's soyoil, used for cooking and in the booming international biofuels sector.
After December rains came in less than their historical norms, farmers are praying for healthy downpours this month or next that will spare them a repeat of the disastrous 2008/09 harvest. That year, the La Nina syndrome, which tends to cause dry weather in Argentina, walloped crops before they could be collected.
"Everything hinges on the rains we expect in late January, February and March, which should save a great part of the soy crop," said Eduardo Sierra, climatologist at the Buenos Aires Grains Exchange.
Crop failures would add to fiscal and political challenges for President Cristina Fernandez. On the heels of her reelection in October, her government has been bracing for fallout from Europe's financial mess and slower demand growth from key commodities client China.
Weather conditions in Argentina are beginning to resemble those of the 2008/09 drought, Kansas City-based World Weather Inc. said in a report on Wednesday. But the report said there was still time for recovery of soybean and sorghum output with sustained rains.
"The earliest that significant rain will fall in some of the drought-stricken areas will be early next week, but confidence is not high," it said.
World food price and Argentine grains graphic: link.reuters.com/suq84s
Corn prices rebounded in December from a one-year low as scant rains left fields parched, eating into supplies from the exporting nation that provides nearly 20 percent of the world's traded corn.
The heart of the Pampas growing area is panting for water after getting only 10 to 50 millimeters of rain in December, down sharply from 60 to 100 millimeters in December 2010.
"It is already too late for this season's corn crop, which has been trying to flower under drought conditions," said Ezequiel Paul, general manager of the Nidera soy and corn farm in northwestern Buenos Aires province.
"Soy can recuperate," he said, explaining that corn is planted earlier than soy and has a shorter growing life, which precludes it from benefiting from any February or March rains.
Dryness has cut Argentina's corn harvest potential by 5 million to 7 million tonnes and soybean harvest by 3 million tonnes, Chicago-based brokerage R.J. O'Brien said on Wednesday. And forecaster Cropcast this week cut its forecast for Argentine corn by 11 percent and the country's soybean production by 3 percent due to the drought
Argentina also supplies almost half the world's soymeal, which is used to feed cattle, particularly in Asia where the expanding middle class is demanding more steak.
The La Nina phenomenon dried out Argentine growing areas in December, which is a frequent occurrence. It commonly starts raining again by February, as it did last year, resulting in a record corn harvest.
The 2009 drought was caused by lack of rain in January and February that year, as La Nina persisted well past December.
Grains exchange weather expert Sierra said the current situation is not as dire as it was in the drought-hit season of 2008/09, when soy came in at 31 million tonnes and corn at 13.1 million. But he said it was not as good as it was in 2010/11.
"We're in an 'in between' situation," Sierra said. "This year it looks like January will be rather dry, but it should rain in February, and it is those rains that will be decisive."
Additional reporting by Maximilian Heath; Editing by David Gregorio