U.S. soymeal prices reached record levels this summer, and are expected to remain strong going forward, providing a solid foundation for soybean prices.

Because of hot dry weather, analysts expect a U.S. soybean crop that is likely to fall below last year's harvest, despite an increase in acreage. But demand for beans and meal is not dropping much -- especially foreign demand due to tight supplies of old-crop South American soy products after a short 2012 harvest in the southern hemisphere. With South American supplies tighter, major importers like China will need to ship soybeans from the U.S. instead of South America.

Despite lowering its harvest estimate in July's monthly supply-demand report, USDA still predicted a 2.24 percent rise in U.S. soybean exports for the 2012-13 marketing year that starts Oct. 1. (As of the start of summer, even before the hottest temperatures, China had booked 350 million bushels of 2012-crop U.S. soybeans, up 52 percent from a year earlier. China has its own crushing plants, so it buys mostly beans and very little meal, say analysts.)

Providing an underpinning for the U.S. meal market is the strong price for corn. "Meal looks cheap when compared to corn," says Terry Reilly, commodity analyst at Citi.  Even if overall U.S. corn stocks aren't tight, it's tough for livestock feeders in the Delta and Southeast to tap supplies in the Midwest, he notes.

"The corn basis in the South is through the roof," says Reilly, citing difficulties in getting corn by railroad to southern livestock operations. That has encouraged some livestock feeders to substitute soymeal and soft red wheat for corn, he says.

One feeder looking at substitutes is David Wicker at Fieldale Farms, a poultry operation in northern Georgia. He's been shipping in soft red winter wheat from the Carolinas, as well as the eastern Corn Belt. "It's a fairly decent buy," says Wicker, who is both the nutritionist and operations director for Fieldale.

Like corn, wheat provides carbohydrates to livestock, but also contains about 10-12 percent protein, compared with about 7.5 percent protein for corn.

Wicker is also using some canola meal as a substitute for soymeal. He buys some from Canada and the Dakotas, but also has a source of canola locally. Some nearby farmers grow a winter canola that's harvested in the spring, and a small local plant crushes it.

The canola meal rates around 34-36 percent protein, says Wicker, compared with 45-48 percent for soymeal. So he limits his canola to no more than 10 percent of a ration. Wicker has also been using up to 7 percent meat meal, along with high-protein feather meal. He says he's also been using more amino acid supplements, such as lysine, when the numbers warrant it.

But when the numbers favor it, soymeal makes up about 35 percent of his rations, with corn around 60 percent.
However, one meal that's not warranted as a soy substitute at Fieldale is cottonseed meal, where Wicker says the price has been bid up by strong demand from dairy farmers.