Smoking hot U.S. soybean oil prices cool off

United States soybean oil prices have cooled off from their smoking hot summer highs.

Prices that topped 70 cents U.S. per pound in June were around 60 cents as of mid-October due to lower-than-anticipated demand, says an analyst.

“We’re in an interesting situation with the U.S. soybean oil balance sheet, there’s no doubt about that,” Randy Mittelstaedt, head of market insight with R.J. O’Brien, said during a recent U.S. Soybean Export Council webinar.

The U.S. Department of Agriculture is forecasting 1.8 billion pounds of soybean oil carryout in 2021-22.

That number is up 575 million lb. over the last three monthly supply-and-demand reports, due to sharp reductions in domestic use of the product.

“Quite frankly, those domestic usage revisions have been pretty impressive,” he said.

He believes it is due to the USDA and the market coming to terms with the fact that they had been overestimating the amount of renewable diesel demand in 2021-22.

There was a lot of renewable diesel hype earlier this year and it is well deserved.

Mittelstaedt said the sector will be a huge source of demand for soybean oil in four or five years, but probably not as big a factor this year as people were anticipating.

“I think there’s a bit of a reality check,” he said.

The USDA had a similar observation in its Oilseeds: World Markets and Trade report.

It noted that the premium of U.S. soybean oil to South American oil that reached nearly $500 per ton in June is now at $90 per ton.

That is still well above the four-year average of $12 per ton but well off the summer highs.

The USDA said much of the summer run-up was rooted in the expected growth in renewable diesel demand.

The premium was unsustainable and rationed demand from export markets and U.S. biofuel manufacturers.

Mittelstaedt noted that the USDA is forecasting 2.19 billion bushels of domestic crush, which is very close to the total annual capacity of 2.3 billion bushels.

He said there needs to be more capacity to meet future demand from the renewable diesel sector and noted that there are some expansions and new builds in the works.

When it comes to soybean seed exports he is becoming concerned about softening shipments to China.

China’s sow population has been down year-over-year in the past couple of monthly reports for the first time in a long time.

Hog prices are severely depressed resulting in negative production margins. The country is clearly in another liquidation phase after expanding too rapidly.

He is confident about long-term demand out of China just like he is with U.S. renewable diesel demand. But for the time being it looks like it will be a little soft as the hog industry resets in that country.