U.S. soybean futures ended higher Tuesday, extending their recent gains on thoughts of a short South American crop and good demand from China.

Soybeans rallied to their highest levels since September based on drought-reduced South American crop potential.

Bean futures drew support from the continued production concerns in South America, even though most of this has already been factored into the market, said Karl Setzer, analyst with MaxYield Cooperative in West Bend, Iowa.

The loss of supply from southern Brazil is spurring strong export demand particularly from China. This is reflected by China -- the world's leading importer of soybeans -- turning to the U.S. for large amounts of beans last week.

The need for soy prices to remain competitive with corn to secure enough 2012 acres to maintain adequate supplies continued to support new crop soy prices. Traders are shifting their focus to new crop planting potential, with the U.S. Department of Agriculture forecasting a hefty increase in corn acres at the expense of other crops in 2012.

However, overbought conditions and reports that recent rains have stabilized crops in Argentina, and are actually showing some sign of improvement triggered light profit taking to cap advances.

"I was very encouraged by today's move above $13 a bushel without consolidating first, but that move must now be confirmed over the next couple of days," said Arlan Suderman, analyst with Farm Futures an agricultural publication.

"I remain bullish soybeans long-term, but get nervous when we rally so far so fast," Suderman added.

U.S. corn futures rallied amid near-term supply concerns and broad strength in grains. Front-month corn has now fully rebounded from losses suffered after the government's bearish Jan. 12 grain report, climbing to a seven-week high. Although traders are wary of the potential for a huge 2012 crop, tight existing supplies and optimism about export demand fueled gains.

U.S. wheat futures ended at three-week highs as a broad rally in grains prompted traders to reduce short positions in the market. Traders attributed the extent of wheat's gains to the large net short position held by speculators.

CBOT May soybeans ended 10 cents higher at $13.12 1/2 a bushel.

CBOT May wheat ended up 15 1/2 cents to $6.68 1/4 a bushel, May KCBT wheat up 16 1/2 cents to $7.10, May MGEX wheat ended up 10 cents to $8.08 3/4.

CBOT May corn ended up 8 3/4 cents at $6.57 1/4 per bushel.

-By Andrew Johnson Jr, Dow Jones Newswires; 312-347-4604; Andrew.johnsonjr@dowjones.com

(END) Dow Jones Newswires

February 28, 2012 16:14 ET (21:14 GMT)

DJ US GRAIN AND SOY REVIEW: Strong Demand Push Soy To 5-Month Highs->copyright

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