USDA’s February Supply Demand Report earlier in the week set fire to the corn market, but without any changes in the balance sheet for soybeans, the soybean pit was rather quiet. However, the market knows that soybeans have to maintain minimum price levels to ensure sufficient acreage is planted to supply domestic and global demand. However, the long term trend for soybeans has been higher due to both global supply and demand.

USDA’s Oil Crops Outlook for February indicates that demand for soybeans will have to be rationed by prices, due to the insufficient supply. USDA economists report that the sharp rise in prices will cause the domestic crush to fall further behind last year’s pace, and add, “The rise in soybean prices is needed not only to ration current demand but also (given the rally in corn prices) to maintain planting incentives this spring for the 2011 crop.”

The price rationing has not only slowed the domestic crush, but has also slowed export demand. Shipments are only slightly ahead of the 2010 pace, but beans booked earlier in the marketing year at lower prices still need to be shipped. But the recent sales pace has declined because of the prices, and shipments into the spring could be fewer and further between. USDA’s export projection earlier this week was retained from January at 1.59 billion bushels.

That would be about the time Brazilian beans, and the record large crop, will be available to the market. The new crop harvest is just now beginning, and will take several weeks to make its way to the ports. The large crop in Brazil was reflected in the USDA’s global supply and demand numbers, because they were able to more than offset the droughty crop in Argentina.

The Brazilian crop began dry, but ended wet and as maturity approached, USDA added another one million metric tons to the yield expectation. The Brazilian farmers have appreciated the higher prices, and have booked half of their crop for sales, which is expected to boost exports.

Next door in Argentina, the dry spell was eased late in January and rains have been more frequent. Early planted beans are expected to yield very low, but late planted beans have benefited from the recent shows. Nevertheless, USDA cut its projection for the Argentine crop by one million metric tons. China, which had been purchasing hundreds of millions of bushels of soybeans, has recently cancelled some US purchases, possibly anticipating better pricing from South American sources.

Along with the rising price of soybeans has been the rising price of soybean meal, which reached a 16 month high of $369 per ton. But USDA economists say the high price is a function of the deteriorating supply, but not an increase in demand. Meal demand is behind that of 2010 because of lower exports, and from domestic livestock producers because of high overall feed costs. USDA says many feeders are substituting other oilseed meals because of temporary price advantages.

Along with the higher prices of beans and meal, have been prices for soybean oil. Demand for oil was high earlier in the marketing season, but rising prices have slowed demand as the price nears the 55 cent per pound mark. Currently they are in the low 50 cent mark, about 10 cents per pound more than January of 2010. The record price was 62.4 cents in June of 2008. USDA says there is not a shortage of soybean oil that would justify record prices, but there is a demand for oil that will reduce the supply.

The demand for soybean oil will pull down the inventory which was a relatively high 3.5 billion pounds at the end of December. But with the help of export demand, USDA says we are selling more soybean oil overseas than last year, particularly to China. China is taking about 38% of total US shipments. However, China will not be buying that high a volume from South America because much of their oil is being converted to biodiesel.

Soybean prices continue to rise, in an effort to ration a short demand, as well as keep pace with corn in the battle to buy acres ahead of spring planting. The high prices have softened the domestic crush and slowed export demand. Competing supplies from South America will soon be available. Both bean meal and oil are at relatively high levels, with meal reflecting diminished supply instead of demand. However, oil prices have been pulled higher by demand.