WESTERN PRODUCER — A technical analysis had DTN lead analyst Todd Hultman thinking soybean oil futures were going to finish October by closing above the 20-day average of US54 cents per pound.
That would have signaled a bottoming out in prices and a bullish change in short-term momentum.
That did not happen. Prices continued to fall, closing at 51.42 cents Oct. 31. However, he remains convinced a floor is in sight.
Prices have been falling since peaking at 65.58 cents July 24.
The retraction amounts to about two-thirds of the original 21.11 cent rally from the May 31 low of 44.47 cents.
Hultman said a two-thirds pullback is a normal downward adjustment to a huge rally such as what the bean oil market experienced earlier this year.
If prices have bottomed and start to climb, it should benefit the canola market due to the high oil content of that crop compared to soybeans, he said.
What gives him hope is that palm oil is showing signs of support, and it is the commodity that often leads the charge in the veg oil market.
The market is anticipating a palm oil rally due to El Nino, a weather event that usually results in reduced rainfall in Malaysia and Indonesia, hampering palm oil production in those countries.
“We’ve certainly been looking for that possibility to develop, but we haven’t seen much evidence of it yet,” said Hultman.
He thinks the downward slide in soybean oil prices could be related to disappointing use in the renewable diesel sector.
The entire biofuel sector consumed a record 1.27 billion pounds of the oil in July, but the August number fell to 1.197 billion lb.
September’s and October’s numbers are not yet available, but Hultman thinks they will continue to decline.
There has been a big drop in biodiesel RIN values starting in early September, indicating that the industry is getting close to reaching mandated volumes for the year.
He has also seen an unverified social media report that the United States is importing renewable diesel from Germany and Singapore.
“If that’s true, that would also take some of the wind out of the soybean oil and canola price,” said Hultman.
Rabobank senior grains and oilseeds analyst Owen Wagner said in a recent webinar that U.S. renewable diesel production has “gotten a little bit ahead of itself.”
That is because the U.S. Environmental Protection Agency’s biofuel mandates for 2023, 2024 and 2025 were surprisingly low. It has created a “glut” of renewable diesel, which is “weighing down” soybean oil prices, he said.
Fastmarkets analyst Eduardo Tinti offered up another theory during a recent webinar on what could be pressuring global soybean oil prices.
Brazil reduced its national biodiesel mandate to 10 percent from 12 percent for 2022 and the first half of 2023 in response to a disappointing 2022 soybean harvest.
The biodiesel sector is a big consumer of Brazilian soybean oil.
“What this did is it created some spare soy oil available, which was diverted to the export sector,” he said.
Every one percentage point drop in the biodiesel mandate results in 400,000 tonnes more soybean oil for export, so there were an extra 800,000 tonnes.
Brazil also harvested a record crop of 155 million tonnes of soybeans in 2023, while Argentina’s production of 21 million tonnes was half of a normal crop.
As a result, Brazil’s share of global soybean oil exports has climbed to 25 percent in 2023, up from 12 percent two years ago.
Argentina has maintained its rank as the world’s largest soybean oil exporter with 37 percent market share, but that is down from 44 percent two years ago.
The U.S. Department of Agriculture is forecasting another record Brazilian crop of 163 million tonnes in 2023-24 and a big rebound in Argentina to 48 million tonnes.
Contact sean.pratt@producer.com
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