To some extent, soybean oil is a residual commodity, secondary to soybean meal, in driving processing rates and influencing complex prices. Crush rates are driven primarily by immediate soybean meal demand, and soybean oil inventories at crushing plants vary based on the balance of demand between soybean oil and soybean meal at any given time.

Roughly half the soybeans grown in the U.S. are exported as whole beans. On average, China buys half of the total soybeans exported from the U.S.¹ The balance between the demand for exported soybeans and soybean meal greatly impacts the crushing margin, which in turn, impacts the crush rate and production of soybean oil. The production rate impacts the buildup or draw down of soybean oil stocks and subsequently, the price of soybean oil.

The trade war involving soybean exports from the U.S. to China has a dual impact on the price prospects for soybean oil. Since the escalation of the trade war, the price for soybeans has dropped approximately 20 percent, the price for soybean oil futures has dropped 10 percent and the crushing margin has widened by about 15 percent.² While part of this decline in soybean price can be attributed to the excellent condition of the current U.S. crop, the trade war is certainly the primary driver.

The USDA reports issued on July 12 showed an undeniable influence of the trade war on the projections for marketing year 2018-19, with the following major highlights:

• Total projected soybean imports to China are estimated to decline by 8 percent.³
• Total U.S. exports of soybeans are estimated to decline by 5 percent.³
• U.S. domestic crush is forecasted at a record 2.045 billion bushels (bu.), up 15 million bu. from this year and 45 million bu. above the June projection.³

Soybean oil stocks are now forecast to grow from 1.71 billion pounds in December 2017 to 2.32 billion pounds this September, and remain somewhat heavy at 2.24 billion pounds the following September. As a result, USDA projects crude soybean oil to cost $0.2950-0.3350 this year and $0.2800-0.3200 next year.³ This implies soybean oil will be delivered to the East Coast and Midwest at less than 35 cents per pound this summer, and another one to two cents lower the following marketing year.

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