Soybean Oil Prices Explained

Soybean oil prices retained their elevated levels as the vegetable oil market registered sunflower and rapeseed oil shortages. Additionally, the soaring palm oil prices (marking their premium rates) made buyers switch to alternative oils. 

Moreover, the tightening of oil supply due to OPEC’s production restriction, the demand for green energy sources, and Brazil’s biodiesel blending mandate give way to renewable diesel production which spikes soybean oil prices.

Why are soybean oil prices fluctuating?

1. U.S. Soybean Production

The improved soybean farming conditions in the U.S. mean healthy production and fuel large domestic consumption in the country and rebuilding of export inventory.

Additionally, the U.S. Energy Information Administration data showed more soybean processing plants are constructed to accommodate the rising demand for renewable oil production. This means that the country’s crushing capacity doubles its usual manufacturing performance. An excess soybean oil inventory is in the making. Thus, its production outpacing supply can have minimal impact on soybean oil prices.

2. Alternative Vegetable Oils

Intensified supply constraints due to Russia’s withdrawal from the Black Sea Grain Trade means low availability of canola and sunflower oils, Ukraine’s top oil exports.

While Ukraine’s Black Sea transportation problem finds another way through rails and rivers, these alternative routes are expensive. This gives leverage to the marketability of soybean oil (the second most consumed vegetable oil).

However, its availability might be short as Brazil will start its biodiesel blending mandate in 2025. This domestic policy requires 15% of soybean oil for its production, reducing the country’s exports. Brazil’s reduced presence will prompt Argentina to cover the gap. However, weather conditions’ volatility provides the commodity’s supply uncertainty and value fluctuation.

3. Biofuel

The demand for consistent biofuel production is the top soybean oil price mover as soybean is the major feedstock for biodiesel.  For example, domestic soybean crushing is quite strong in the U.S. as the country strengthens its renewable oil production to pacify its demand for fuel.

California is the major proponent of this law. The state doesn’t only work on reducing its fuel dependency but strives to lessen its carbon emissions by biofuel burns.  Additionally, Canada’s newly implemented low-carbon fuel standard is another soybean oil price booster.

While these elements look promising from the market perspective, the industry needs to deal with pressing concerns from its European trade as deforestation for soybean acreage gives rise to sustainability concerns.

Which variables impact the price of soybean oil?

• U.S. Soybean Production
• Alternative Vegetable Oils
• Biofuel
• Weather
• Government Policies
• Speculative Trading

Where does soybean oil come from?

Soybean oil is the world’s second-largest source of vegetable oil and 90% present of all US oilseed production due to its high smoke point and affordability. 

The first record of soybean oil dates back to the 11th century in China as one of the country’s five main plant foods. Exported as a fertilizer, it spread across Europe in 1700 and the first US soybean crop surfaced in 1829. During the Civil War, soldiers used this as a coffee substitute and farmers planted soybeans as a forage crop. 

George Washington Carver, an African-American agricultural scientist and inventor, discovered soybean’s rich protein and oil content. As a result, its cultivation further intensified in the US during World War 2 as its oil topped as the first alternative source of vegetable oil. 

There are two main methods of making soybean oil:

1. Mechanical Pressing – The traditional method of oil extraction. It involves crushing the soybeans to release the oil and the oil is separated from the solids. This method is less efficient than solvent extraction but it produces a lower quality oil that is more natural.

2. Solvent Extraction – This modern method of oil extraction uses solvents such as hexane to dissolve the oil from the soybeans. This technique is more efficient than mechanical pressing which produces a stable and higher oil quality. 

Generally, mechanical pressing is good for small-scale production while solvent extraction is for larger-scale production. 

What are the uses of soybean oil?

Soybean oil’s versatility produces various uses such as:

1. Cooking oil – Soybean oil is a popular cooking oil because it has a high smoke point which means it can withstand high temperatures without breaking down and smoking. This makes it ideal for frying, baking, and other high-heat cooking methods.

2. Salad dressing – Due to its mild flavor that does not overpower the other ingredients, soybean oil becomes a common ingredient in salad dressings. Additionally, it is a good source of omega-6 fatty acids which are essential acids that the human body needs.

3. Margarine – Soybean oil is a major ingredient in margarine, a spread that is a good substitute for butter. Margarine is made by hydrogenating soybean oil which changes the chemical structure of the oil and makes it solid at room temperature.

4. Biodiesel – Soybean oil is also a major component in making biodiesel, a renewable fuel that can be used in place of diesel fuel. Biodiesel is made by chemically reacting soybean oil with methanol or ethanol.

Today, this flexible vegetable oil comes from top-producing countries such as China, the United States, Brazil, Argentina, and the European Union. With the combined production, these countries produced nearly 75% of the global soybean oil.

What is the future price of soybean oil?

While soybean oil prices are dependent on the availability of other vegetable oils, the commodity’s flexible properties find extensive application in green technologies. Additionally, the volatility of the oil market and shifting trade partnerships contribute to its marketability.

The bumper South American soybean output impacts soybean oil demand and prices. With Brazil and Argentina producing record-high soybean crops, the global supply of soybean oil increases.

This surplus often results in lower soybean oil prices, making it more competitive compared to other vegetable oils like sunflower and rapeseed oils. As a result, soybean oil is a preferred choice for food and biofuel industries, driving up demand despite lower prices.

The Brazilian biodiesel blending mandate which is set to increase to 15% in 2025 influences soybean oil export and global supply. This regulation requires a higher percentage of biodiesel to be blended with diesel, boosting domestic and international demand for soybean oil.

The expanding renewable energy production across U.S. states supports its soybean oil market. California and Oregon offer credits for biofuel use prompting other states to ramp up demand for soybean oil as a feedstock for biodiesel. This boosts soybean prices and encourages farmers to plant more soybeans.

In Europe, the need for vegetable oil for consumption and green energy production impacts soybean oil prices. The European Union’s push for renewable energy and the narrowed sunflower and rapeseed oil supply from Russia and Ukraine lead to higher demand for vegetable oils.

Thus, market analysts forecast that the average price of soybean oil in 2030 will be around $1,000 per metric ton.