As the trade dispute with China accelerates, and a very good and slightly early 2018 soybean crop has become virtually assured, both soybeans and crude soybean oil futures have been in a general decline. Soybean futures prices are off nearly 25 percent and soybean oil futures are off over 15 percent from May. However, refined, bleached and deodorized (RBD) soybean oil prices in the spot cash market are off a mere $0.01 per pound. The last three months of 2018 are quoted a bit lower, but just about $0.03 below the spot quotes.¹

A driving factor is the premium for canola oil versus soybean oil, which stands at a fairly wide $0.06 per pound. Canola crushing margins are currently very poor, while soybean crushing margins are excellent; this is the result of soybean oil futures’ share of the soybean value being at the low end of the long-term range. Most recently, the oil share has been running about 30 percent versus the long-term range of generally 30 to 40 percent. As recently as 2011, the oil share of soybean product value was regularly at 45 percent. With oil share persistently around 30 percent, the canola/soybean oil price spread tends to favor canola. ¹

Another factor in strong refined soybean oil prices is the increasing production of renewable diesel. Most biodiesel is produced by blending soy methyl ester with petroleum diesel in various proportions. In recent years, however, a number of petroleum refineries have added a process that allows RBD soybean oil to be refined with crude petroleum to produce biodiesel within the petroleum refining process. This is referred to as “renewable diesel.” In addition to being an economical way to meet the required volume obligations under the Environmental Protection Agency’s (EPA) biodiesel mandate, the current price spread between crude petroleum and soybean oil makes biodiesel more economical to produce than petroleum diesel.²

While crude soybean oil futures prices continue to set the starting point for refined oil prices over the upcoming crop year, look for the trend in soybean oil share of soybean product value and the spread between soybean oil prices and crude petroleum prices to contribute to record or near-record soybean oil refining premiums to keep RBD soybean oil prices firm.

Trade issues with China, America’s number one soybean export destination, continue to weigh on soybean futures prices, and this has been further impacted by what the United States Department of Agriculture (USDA) projects to be a record 2018 soybean crop. The crop is maturing early and preliminary yields seem to be even greater than expected. In late September, soybean futures made a 10-year low at $8.12 per bushel.³

This has in turn put a great deal of pressure on all vegetable oil prices, including soybean oil. Spot RBD was quoted at $0.37 per pound at the end of May, and traders report that this position is buyable today at approximately $0.36 per pound. ³

The USDA reports issued on July 12 showed the undeniable influence of the trade conflict on the projections for marketing year 2018-19, with the following key points:

• Total projected soybean imports by China declined by 8 percent. ⁴
• Total U.S. exports of soybeans declined by 5 percent. ⁴
• U.S. domestic crush is now forecast at a record 2.045 billion bushels, up 15 million bushels from this year and 45 million bushels above the June projection. ⁴

The net result for the soybean oil trade is that soybean oil stocks are now forecast to grow from 1,711 million pounds at the end of 2017 to 2,316 million pounds in September 2018, and remain somewhat heavy at 2,236 in September 2019. As a result of all of these dynamics, crude soybean oil at crushing plants is projected by USDA to cost $0.30 to $0.34 this year and $0.28 to $0.32 next year.³

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