KANSAS CITY — Bakers and other buyers of edible oils may face two years or possibly more of continued unusually high ingredient prices before markets return to what may be considered to be more normal levels, Paul Meyers, vice president, commodity analysis, Foresight Commodity Services, Inc., told participants in the virtual Sosland Purchasing Seminar webinar on June 8. A return to more “normal” markets would require both a supply response in the form of larger soybean crops in both North and South America, which may in fact happen this year, and destruction of demand, at least in the short term, which, in the case of the United States, may come in the forms of a drop in soybean and soybean oil exports and a rationalization in the biodiesel sector, many of whose plants have not been able to run profitably because of high input prices and competition from a rapidly expanding renewable diesel sector. The larger scale of the renewable diesel plants allows them to better sustain operations during a period of extraordinarily input high prices.
Mr. Meyers said with the exception of corn oil in the United States, major edible oil prices currently are more than double their year-ago values, so the price strength extends well beyond soybean oil.
With both US soybean and soybean oil stocks dwindling to pipeline levels, futures have soared. Soybean oil futures in May averaged 65¢ a lb, the highest ever monthly average, and soybean oil futures on June 7 traded above 73¢ a lb, Mr. Meyers said. Soybean oil futures’ share of the value of the soybean crush averaged 45% in April and 47% in May and for June to date. It was the highest soybean oil share in the value of the soybean crush since 2012. In most recent years, the soybean oil share in the value of the soybean crush has ranged between 31% and 35%.
Soybean oil users also must deal with an explosion in cash basis levels, Mr. Meyers said. He noted basis levels he has seen quoted for Decatur have been running 7¢ to 8¢ a lb above soybean oil futures, with some quotes up to 11¢ over. Often around this time of year, the basis at Decatur would be 50 points above or below soybean oil futures. He also noted basis levels in the western Corn Belt, including western Iowa and Minnesota, have been even higher, at about 20¢ a lb. Typically the western basis is at a discount to Decatur, but this year, the western basis has been higher because much of the soybean oil supply there was being drawn to the nation’s largest renewable fuel plant in Sinclair, Wyo., Mr. Meyers explained.
As with soybean oil futures, the extraordinarily high cash soybean oil basis has been fueled mostly by the rapid expansion of the renewable diesel sector. Mr. Meyers said current renewable diesel capacity was about 2.3 billion lbs of soybean oil a year, and that the US Department of Agriculture indicated this capacity will double in the next year, with further possible expansions in 2023 and 2024.
The USDA recently combined in its supply-and-demand tables soybean oil use by biodiesel manufacturers and renewable diesel manufacturers. Demand for soybean oil from the now combined biofuel sector was forecast at about 9.5 billion lbs in 2020-21 and about 11.5 billion lbs in 2021-22. With such growth, it was difficult to make a bearish case for soybean oil futures.
Mr. Meyers pointed out even if the US soybean crop sets a new record in 2021, because of the extremely small carry-in supply, the US soybean supply in 2021-22 probably will be lower than in the current year, which suggests soybean oil users will continue to face exceptionally high prices well into if not through the 2021-22 marketing year.