KANSAS CITY — With many commodity and ingredient prices currently at or near two-year highs and looking to continue strong if not set new highs in some cases in 2011, soybean oil values are right in the mix, hitting new 28-month highs last week on global supply concerns and growing demand.

The January 2011 soybean oil futures contract topped 57c a lb early last week, the highest for the nearby contract since July 2008. The March through September contracts topped 58c a lb. As the week came to a close, the nearby soybean oil future was up about 40% from the Dec. 31, 2009, close of 40.35c a lb, with year-end profit taking trimming gains a bit.

Cash vegetable oil prices have been well above year-ago levels, with soybean oil the largest volume oil used in the United States and second only to palm oil globally, dictating values in many cases. Bulk soybean oil was priced at 53.5c a lb, basis Decatur, Ill., last week, up 47% from 36.5c at the end of 2009, up 67% from 32c on Dec. 31, 2008, and a 28-month high. Still, last week’s price was about 20% below the high of 66.25c a lb in July 2008.

Dry weather in Argentina, the world’s third largest soybean producer behind the United States and Brazil, has been the main driver behind soaring soy complex futures prices. The U.S.D.A. projected 2010-11 Argentine soybean production at 52 million tonnes, 5% below the record 54.5 million in 2009-10. The next U.S.D.A. Argentine estimate will be in the Jan. 12 World Agricultural Supply and Demand Estimates. But the Buenos Aires Grain Exchange recently reduced its estimate of planted area due to the ongoing dryness, and some private analysts were following suit. Europe’s Oil World recently cut its forecast of 2010-11 Argentine soybean production to a range of 43 million to 48 million tonnes from 50.5 million tonnes previously. Soybean planting was more than 80% completed in Argentina last week.

But the real “threat” comes in that Argentina is the world’s largest soybean oil exporter by a wide margin. The South American nation was projected by the U.S.D.A. to export 5,250,000 tonnes of soybean oil in 2010-11, nearly four times the total of 1,345,000 tonnes from Brazil and more than four times the U.S. export total of 1,225,000 tonnes. If realized, soybean oil exports from Argentina in 2010-11 would be up 19% from a year earlier, compared with exports from Brazil, up 6%, and from the United States, down 20%, based on U.S.D.A. December projections.

Compounding the soybean oil situation is strong global vegetable oil demand and impressive Chinese demand for U.S. and other origin soybeans, with the effect of reducing “crushable” soybean supplies, especially in the United States, along with strong crude oil prices and potential demand for biodiesel production.

While total global 2010-11 vegetable oil production was forecast by the U.S.D.A. at a record 145.91 million tonnes, up 5% from 2009-10, global consumption was forecast at a record 146.01 million tonnes, up 6%. Total vegetable oil consumption was expected to surpass production for the first time in recent history, even though soybean oil production still was expected to be greater than consumption.

The U.S.D.A. projected U.S. soybean oil prices to average in a range of 45@49c a lb in 2010-11, up sharply from 35.95c a lb in 2009-10 but modestly below the 2007-08 record high average of 52.03c a lb.

One market analyst noted a “strong seasonal tendency” for soybean oil prices to rise between the third week of December and the third week of March, which has occurred in 13 of the last 15 years.

While the current high price of soybean oil in the United States has dampened demand of the oil by the biodiesel sector, the recent renewal of the $1-a-gallon biodiesel credit for 2011, and increasing mandates for biodiesel use prescribed in the Renewable Fuels Standard, keeps the door open for increased use of soybean oil as well as other fats and oils. Crude oil futures, trading near seven-month highs above $91 a barrel last week and forecast to stay strong in 2011, have been supportive to soybean oil prices because of the biodiesel tie-in.

Somewhat offsetting is 2010-11 forecast soybean production of 67.5 million tonnes, second only to last year’s record 69- million-tonne crop, in Brazil, which appears to be missing the weather woes of its southern neighbor. At the same time, the U.S.D.A. noted in its November Oilseeds: World Markets and Trade report, increasing biodiesel use mandates in Brazil and Argentina and strong biodiesel demand in Europe were diverting more South American soybean oil into the market for fuel.

The impact of high soybean oil prices has been reflected in products that rely heavily on the ingredient. The Food Business News mayonnaise index stood near 123% of the March 2005 base of 100, up more than 30% from a year ago, but well below the 2008 record high near 263% of the 2005 base.

Ironically, the high soybean oil values are coming on the heels of record large U.S. soybean production of 3,375 million bus in 2010 and ongoing heavy domestic soybean oil stocks, estimated by the U.S.D.A. at 3,358 million lbs at the end of the 2009-10 marketing year on Aug. 31, 2010. Early forecasts from private analysts suggest 2011 U.S. soybean planted area may decline as farmers favor even more profitable corn, wheat and cotton; thus the great concern about the South American soybean crop, the shrinking U.S. 2010-11 soybean supply and continued high soybean oil prices.