GRAINS-Markets edge higher as dryness threatens Argentine crops

* Dry weather threatens corn, soy in Argentina

* Exporters sell U.S. soybeans to top importer China

* Wheat futures pull back after rising on Friday

CHICAGO, Jan 28 (Reuters) - U.S. grain and soybean futures edged higher on Monday as traders worried dry weather will trim output in Argentina, the world's top exporter of soy products and second-largest corn supplier. All eyes are on weather models as Argentina and Brazil need to produce large crops to meet strong demand for soybeans from top importer China. Traders broadly expect large harvests in South America in the coming months, but every twist in the weather is being scrutinised amid tight global supplies. Corn in Argentina will endure "a lot of pretty serious stress" from dryness in the next three days before rain is expected to fall, said Drew Lerner, president of World Weather Inc. Soybeans also will suffer stress, he said, adding that crop conditions will worsen if the weather stays dry in February. At the Chicago Board of Trade, March soybeans rose 0.1 percent to $14.43 a bushel by noon CST (1800 GMT). March wheat dipped 0.1 percent at $7.76 a bushel, and March corn gained 0.4 percent to $7.23-1/4 a bushel. Trading was choppy amid uncertainty about the upcoming prospects for moisture. "Until that forecast breaks one way or another, you're going to see two-sided trading," Jim Gerlach, president of A/C Trading, said of Argentina's weather.

BRAZILIAN BOTTLENECK Soybean futures were underpinned by firm cash prices and talk that China will need to source higher volumes from the United States in the near term as infrastructure bottlenecks delay shipments from Brazil. Brazil is forecast to surpass the United States as the No. 1 exporter and producer of soybeans this season, with a record 85-million-tonne crop that has already begun to be harvested in top soy-growing state Mato Grosso. Big trading houses are dispatching an armada of ships to Brazil, hoping for a good spot in line to load up the record soybean crop. Brazil's crop is 30 percent bigger than last year's, which is good news for big importers of soy, such as China. However, the South American farming giant added no new capacity to its ports. Private exporters struck deals to sell 220,000 tonnes of U.S. soybeans to China for delivery in the next marketing year, the U.S. Department of Agriculture said on Monday. The USDA separately said 40.7 million bushels of U.S. soybeans were inspected for export last week, within expectations for 39 million to 43 million bushels.

Weekly U.S. export inspections were 22.3 million for wheat, above expectations for 16 million to 20 million, and 21.1 million bushels for corn, above expectations of 8 million to 11 million.

WHEAT RETREAT Wheat futures slipped on profit-taking after rising 1 percent on Friday on better-than-expected U.S. exports last week and concerns about dry weather in the United States. Large overseas harvests are expected to compensate for lagging production in the U.S. Plains. The front-month CBOT wheat contract is expected to end 2013 at $6.80 a bushel, down from the closing price of $7.78 at the end of 2012, according to the average estimate in a Reuters survey of analysts and traders. Analysts see Chicago corn prices falling by 22 percent to under $5.50 per bushel by year's end and soybeans by 17 percent to $11.83 per bushel as world supplies are projected to recover.

Prices at 12:03 p.m. CST (1803 GMT)

LAST NET PCT YTD CHG CHG CHG CBOT corn 722.75 2.00 0.3% 3.5% CBOT soy 1443.00 2.00 0.1% 1.7% CBOT meal 418.20 1.80 0.4% -0.6% CBOT soyoil 51.87 -0.23 -0.4% 5.5% CBOT wheat 775.25 -1.25 -0.2% -0.4% CBOT rice 1540.00 -8.00 -0.5% 3.6% EU wheat 247.00 -0.25 -0.1% -1.3%US crude 96.29 0.42 0.4% 4.9% Dow Jones 13,881 -15 -0.1% 5.9% Gold 1654.40 -4.09 -0.2% -1.2% Euro/dollar 1.3455 -0.0008 -0.1% 2.0% Dollar Index 79.7900 0.0420 0.1% 0.0% Baltic Freight 792 -6 -0.8% 13.3%