UPDATE 1-Supply of soy to Argentine livestock feed factories down by half, and falling

(Adds Brazil commodities supply context)

BUENOS AIRES, March 27 (Reuters) - The supply of soybeans to Argentine crushing plants is down by half and falling, the Rosario grains exchange said on Friday, as municipalities citing health concerns defied a government order that they allow cargo trucks to reach the plants.

Mayors of dozens of towns near the Rosario grains export hub have blocked ground transport as Argentina locks down against the coronavirus pandemic. The federal government has told municipal governments to unblock their roads, but many have defied the order, saying health must come before trade.

The disruption in output from the world’s biggest exporter of soymeal livestock feed could change global trade flows as importers look to rival suppliers to fill the gap. One of those rivals is neighboring agricultural powerhouse Brazil, where the national government also acted to ensure commodities supply.

“Some municipalities are closing themselves off to grains trucks while others are opening. The situation is changing day by day but the effect on the supply of soybeans to the crushing plants that are affected has clearly been negative,” said Emilce Terre, chief economist at the Rosario grains exchange.

In the first week of March, 28,033 trucks hauling soy, corn and other agricultural commodities arrived at Rosario ports and meal factories, according to data compiled by the exchange. That number plummeted to 13,267 in the first five days of this week.

“The situation is getting worse,” said Gustavo Idigoras, president of Argentina’s CIARA-CEC export companies’ chamber. “There are still problems in several provinces where municipalities have prohibited the entrance and exit of grains trucks, in defiance of norms established by the national government.”

Brazil issued an order on Friday deeming truck stops, gas stations and highway diners as essential services, seeking to ensure cargo haulers keep moving grains, feed and meat to markets at home and abroad.

Earlier this week, at least two towns in the heart of Brazil’s farm country enforced quarantine measures that placed curbs on food processors and threatened Brazil’s grain shipment capabilities at a crucial time for farmers, who last week had a little more than 30% of soy fields still to harvest this season.

One of the towns subsequently reversed the measure. Bartolomeu Braz, president of Brazil’s grain grower group Aprosoja, said soybeans continued to be harvested and shipped without significant disruptions.

The world’s biggest soy crushing plants are in Rosario, Argentina. They dot the banks of the Parana River, which carries cargo to the shipping lanes of the South Atlantic.

Rosario handles nearly all of Argentina’s soymeal production and most of the raw grains exported from the country.

The pandemic hits at the worst possible time for Argentina’s farm sector, as growers begin harvesting this season’s soybeans and corn, the country’s two main cash crops. The sector is Argentina’s main source of export dollars.

Even before the health crisis, Argentina, victim of decades of financial mismanagement despite the vast wealth created every year on its famously fertile Pampas grains belt, was struggling to end a recession and avoid defaulting on its sovereign bonds.

Reporting by Hugh Bronstein and Maximilian Heath Additional reporting by Ana Mano in Sao Paulo; Editing by David Gregorio and Leslie Adler