A government report Thursday will highlight the impact of drought on corn and soybean crops in South America, and to what extent U.S. exports could increase as a result.

The shift could have the greatest impact on U.S. corn supplies, according to analysts surveyed by Dow Jones Newswires. On average, analysts project the U.S. Department of Agriculture will estimate U.S. corn stockpiles of 797 million bushels when the crop marketing year ends Aug. 31, down from a January estimate of 846 million.

The shift is expected because corn supplies in Argentina, a key exporter, are dwindling thanks to a hot, dry summer there. With fewer opportunities to buy from Argentina, buyers should have to turn to the U.S. instead. The two countries have vied for ranking as the world's top corn exporter in recent years said Mike Zuzolo, president of Global Commodity Analytics and Consulting.

The U.S. Department of Agriculture will release its monthly supply and demand estimates Thursday at 8:30 a.m. EST.

Analysts on average expect the USDA will estimate Argentina's 2012 corn crop at 22.5 million metric tons, down from a January estimate of 26 million. Traders have been widely assuming a crop reduction there as conditions have worsened, and a USDA attache in Argentina last week pegged the country's corn crop at 21.8 million metric tons.

"Though the weather situation in both Argentina and Brazil has improved from what was seen in December and January, some damage has been done, particularly to the corn crop," Western Milling analyst Joel Karlin said.

Karlin said there could be further losses depending on the weather to close out the season. The USDA's downgrade to Argentina's corn crop should be accompanied by an increase to U.S. exports, analysts said.

The question for traders is whether the government will be conservative in cutting the size of the crop and increasing U.S. exports, as many assumed was the case with its January estimate.

"I'm assuming the USDA will take a staggered approach," said Zuzolo, whose corn stockpile projection of 796 million bushels was in line with the analyst average.

Analysts see the USDA cutting Brazil's corn output to 59.8 million metric tons, down from a January estimate of 61 million.

While South America will be a focus for the corn market, Mexico, could be a potential wildcard, analysts said. Mexico is suffering through severe drought that has devastated the crop in many areas, which could lead it to import more U.S. corn.

The USDA's Argentina soybean crop projection is expected to be cut to 48.5 million from a January estimate of 50.5 million, and Brazil's soy crop is projected at 71.7 million, down from a January estimate of 74 million.

Analysts see only a minor reduction in U.S. soybean stockpiles. On average, U.S. analysts project stockpiles at the end of the crop marketing year Aug. 31 of 269 million metric tons, down from 275 million in January.

Soybeans have a later growing season, and damage to South America crops is not as certain, analysts said.