• Refined soybean oil prices chart a separate course from crude soybean oil futures

    November 20, 2018 12:14 AM

    Market-Updates-Tag
    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

    References:
    1. 
    CME Soybean Futures Quotes, http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html
    2. “The Complex Dynamics of Coprocessing.” Biodiesel Magazine, 2018. http://www.biodieselmagazine.com/articles/2516478/the-complex-dynamics-of-coprocessing
    3. USDA World Agricultural Supply Demand Estimates, http://usda.mannlib.cornell.edu/usda/waob/wasde//2010s/2018/wasde-07-12-i’2018.pdf
    4. Foreign Agricultural Service, https://apps.fas.usda.gov/gats/default.aspx 

  • Potential impact of china’s retaliatory soybean tariff on the soybean oil market

    August 17, 2018 10:15 PM

    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.

    References:

    1. Foreign Agriculture Service, https://apps.fas.usda.gov/gats/default.asp
    2.
    CME Soybean Futures Quotes, http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html
    3. USDA World Agricultural Supple Demand Estimates, http://usda.mannlib.cornell.edu/usda/waob/wasde//2010s/2018/wasde-07-12-2018.pdf
  • Price Volatility Returns To The Soybean Complex

    May 04, 2018 5:02 PM

    On April 4, 2018, soybean futures quotes suffered a highly volatile day upon China’s announcement of import tariffs on U.S. soybeans. Soybean futures dropped over five percent in value before recovering about half that loss on the market.1 However, subsequent to the announcement, soybean futures recovered all of the immediate loss.

    This positive turn can be explained by three factors: the recent dialogue between Chinese and American officials, the demand of U.S. soy regardless to any trade war, and the weather-related reduction in the Argentine soybean crop.

    In the April USDA World Agricultural Supply and Demand Estimates (WASDE) update, USDA projected global soybean imports to be up five percent at more than 150 million metric tons.The U.S. is projected to produce 37 percent of soybeans supplied to the world. Brazil is expected to produce 48 percent, while the remaining 15 percent will be sourced from other origins. Tariffs on U.S. soybeans will not significantly affect the ultimate export number for domestic soybeans.

    Any negative impact on soybean values would tend to weigh most heavily on soybean oil values, since global soybean meal demand remains extremely robust in the developing world. As more soybean meal is used to feed livestock and poultry, oil surpluses develop.3 The latest WASDE update forecasted U.S. soybean oil stocks to be at a near 2 billion pounds in September 2018. 2 This would be the densest level in six years. USDA is forecasting 2017-18 soybean oil prices to average about 1 cent per pound, which is similar to its current level.

    References

    1. “CME Soybean Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html CME Group. April 11, 2018.
    2. “World Agricultural Supple Demand Estimates.” http://usda.mannlib.cornell.edu/usda/current/wasde/wasde-04-10-2018.pdf United States Department of Agriculture. April 10, 2018.
    3. “CME Soybean Oil Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_quotes_globex.html CME Group. April 11, 2018.

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Richard GallowayAbout the Expert

Richard Galloway is president of Galloway and Associates, LLC, a business consulting firm serving domestic and foreign agricultural processing, vegetable oil refining, biodiesel and grain handling industries. Galloway is a consultant to the QUALISOY Board, a collaborative effort among the soybean industry to help market the development and availability of trait-enhanced soybean oils, including high oleic soybean oil. Read More...