U.S. soybean prices have been climbing steadily on reports of lowered South American crop forecasts and expectations for increased demand for U.S. soy in world markets.  Worries of drought-reduced South American supplies are lifting U.S. soybean prices which last week recorded a seven-month high.

The USDA will update its monthly world supply and demand estimates and ending stocks forecasts on Tuesday. Traders expect the USDA to estimate Brazil's soybean production at 67.114 million tons, down from 68.5 million in March, according to a Reuters poll. Argentine production was seen dropping to 45.193 million from 46.5 million.             

“We still see the same dry conditions impacting the South America region,” says Joe Kerns, International Agribusiness Group, Ames, Iowa. Citing the USDA quarterly Hogs and Pigs report showing current pig numbers up two percent, strong U.S. soybean and corn export volumes and increased ethanol production, Kerns is increasingly concerned about prices pushing higher.

“Not only is demand reduction tough to find, it seems all the major grain and soybean demand groups think someone else will give,” warns Kerns. “The market will have to continue rising until it finds a price level where it causes enough pain to cause people to change their actions. The livestock industry may have to trim back their demand of soybeans just to squeak by.” According to Kerns, the price of soybean meal in 2008 reached $440 per ton.

Kerns terms the corn market ‘a tale of two cities’ and expects considerable volatility as the market transitions from last year’s crop to the new crop. “For the old crop we have a bullish scenario, yet the numbers – on the surface for new crop – are still bearish. Finding a smooth and equitable transition may get brutally ugly.”