Move over corn, cattle and cotton. The star performer among U.S. ag commodities so far this year is soybean oil. At one time a bit player in the markets, soy oil is now one of the hottest trades going.
Soy oil futures soared 54% this year through April, reaching the highest levels since late 2022 and outpacing most other major ag markets, including soybeans (which were up about 15%). Average daily soy oil futures trading jumped nearly 50% and almost matched that of Chicago and Kansas City wheat trading combined.
Soy oil’s ascension was fueled by a powerful combination: war-driven rallies in crude oil and diesel markets and an outlook for sharply higher U.S. biofuels blending mandates. This situation provides a welcome reprieve for U.S. farmers by propping up a sagging soybean market that languished much of last year under the weight of massive South American harvests and losing China’s business.
Soybean traders, speculators in particular, happily coasted on the bullish tailwinds. In late April, new-crop November soybean futures closed in on $11.80 per bushel, near a two-year high. In March, old-crop futures traded as high as $12.50.
Protect the downside
For farmers, it’s a good time to question just how much longer the ride can last.
The longer-term bullish story is well established. U.S. soybean processors are expected to crush a record amount for the fourth year in a row, based on a USDA forecast, as the industry ramps up to keep pace with growing biofuel demand. The Trump administration’s proposed biofuel mandates would increase biomass-based diesel blending requirements in 2027 by 60% from 2025 levels.
It’s not just an American story. The U.S.-Iran war is prompting other countries to accelerate efforts to pivot away from fossil fuels. For example, Indonesia, the world’s top palm oil producer, recently said it will raise the mandatory blending rate for biodiesel made from palm oil from 40% to 50%, Reuters reported.
“Soybean oil demand from the biofuels industry appears greater than the soybean oil industry can service without the U.S. diving further into imports for food oils and converting more domestic oils over to fuels,” StoneX analyst Bevan Everett wrote in April. “In that light, soybean oil or veg oils in total provide a strong core of value to soybeans.”
The shorter-term conundrum revolves around the question of whether this story, and by association the spring soybean rally, is about played out. U.S. soybean acres are poised for a sharp increase, and spring planting started off ahead of schedule. Brazil just harvested another record crop. China may buy more U.S. beans, or it may not. Crude oil prices eventually will drop.
Farmers should certainly be encouraged by the longer-term trends in biofuel demand here and abroad. But don’t lose sight of the near-term bearish flags.
“We’re to the point of extreme anxiety in regard to the energy situation, and $6 diesel at the pump isn’t that far away for the majority of the country,” wrote John Zanker, senior analyst at Farmer’s Keeper, in an April report. “However, we’re also close to a hard break in the soy complex if and when a [U.S.-Iran] peace agreement is agreed to. The crop is going into the ground at a record pace, and an increase in acres is close to a given at this point.”