With increased U.S. corn and soybean acres projected by analysts for 2012, and drought concerns swirling around Brazil and Argentina crop yields, traders have multiple factors to consider in placing their bids.

U.S. farmers are expected to increase their 2012 corn acre commitment to 94.3 million acres, up 2.6 percent from a year ago, according to a Bloomberg survey. Analysts expect U.S. soybean acreage to rise slightly over last year’s total to 75.3 million acres.

However, will the increased U.S. acreage commitment help keep a lid on prices? The USDA crop production report due Thursday may offer more clues.

There’s no doubt that dry conditions have significantly damaged crops in Argentina. “Analysts polled by Dow Jones ahead of Thursday’s USDA report now expect the Argentine corn crop to be about 21.65 million metric tons, or about 4.35 million metric tons lower than the January forecast,” according to the CME Daily Livestock Report.

However, the drought that has plagued Brazil and Argentina may be moderating. “The weather concerns of the growing season are shifting from that of not-enough-moisture to a more normal flow,” says Joe Kerns, vice president, International Agribusiness Group, Ames, Iowa. “The “loser” in the drought has been the Argentinean corn crop.”

Kerns expects the USDA to lower its corn production forecast in Thursday's report. “This is generally expected by the trade as USDA was very moderate with its adjustment in the January report.”

According to Kerns, soybean yield projections for Brazil and Argentina are stabilizing or improving. “La Nina has deteriorated and allowed showers to cover growing areas.” As a result, Kerns believes demand for U.S. soybeans may soon ease.  “During the coming weeks, look for the United States to lose front-runner status and the world to identify South America as the source of choice,“ he says.

“China would prefer South American soybeans on both a quality and price perspective,” Kerns says. “It looks to me that we are currently on the top end of the range on soybeans and $12.50 would represent favorable sales levels.”

Source: CME Daily Livestock Report, Bloomberg