Soybean’s value is influenced by both the supply and demand of its products, soybean meal and soybean oil, as well as its own supply and demand influences. The strengthening of oil share has implications to the underlying price of soybeans, including the magnitude of price action as a result of any fundamental changes in world vegetable oil demand. While soybean oil has historically traded around 35-38% of the CBOT Board Crush (gross margin of the products,) oil share currently stands at 48%.

 

Relative Demand for Soybean Meal Has Weakened Even During the Most Recent Rally

 

The prices of new crop 2021 soybeans, soybean meal and soybean oil all rallied in relative unison from about May 2020 after hitting COVID lows. Around October 5, 2020, the oil share was 33.35% of the board crush, close to the historical norm of 35-38%. As the soybean meal market hit its high on May 12, 2021, the oil share increased to 41.15%, indicating that soybean oil was the stronger product of the two on the rally and gaining influence on the price of soybeans.

 

 

Soybean Strength Is Underpinned by the Strength of Soybean Oil

 

In contrast to soybean meal’s May contract high, soybeans and soybean oil hit their contract highs in the early part of June. Soybeans posted their contract high on June 7, followed by soybean oil’s high the following day on June 8. By then, soybean meal had fallen from its highs and the oil share calculated out to be 45.74%.

The relative strength of soybean oil has grown beyond the rally. As of October 6, soybean meal was trading at $323.30, not seen since a year ago in October 2020; soybean oil was trading at 60.41 cents, which is in the middle of the range set between the June high and low; and soybeans were $12.44, testing their June lows. Oil share was 48.30%, reflecting the current relative weakness of the soybean meal market and continued strength of soybean oil. The strength in soybean oil has somewhat muted the weakness that the soybean market has experienced the last few months.

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Soybean Oil Price Action Will Have Large Influence on Soybean Prices

 

Historically, it has been difficult for oil share to rally much above 50% for any sustained period of time before reverting back to the mid to low 30s.

With the current supply/demand structure, there is strength in the world vegetable oil market and, accordingly, soybean oil. Any strength in the soybean meal should add support to the soybeans. Conversely, if there is continued weakness in the soybean meal market, that weakness may still be felt in soybeans unless counteracted by more bullish data from the soybean oil side.

The concern to the soybean market is in any sustained weakness in soybean oil that is not counterbalanced by strength in soybean meal. If soybean oil were to break below the 54.14 cents support level, then a test of the June low of 51.98 cents is quite possible with the possibility of soybeans also falling in sympathy to the $11.50 level.

On the flip side, if there is new demand on the soybean meal side of the equation and world vegetable oil markets and soybean oil stay strong, there quite possibly could be more upside potential in the soybean market. Of course, it must not be forgotten that there are supply and demand forces on soybeans themselves, and any direct market influence on soybeans will also be felt in the markets and prices for the products of soybean meal and soybean oil.

Possible factors that can influence the demand for soybean oil include:

• Any fundamental change in biofuel demand, such as any easing in the Renewable Fuels Standard in the United States or its European or Asian counterparts.
• A continued concern over future lock-downs in the age of COVID, potentially lowering the demand for cooking oil.
• Any change in Malaysia’s supply or demand of palm oil due to its outsized impact in the world vegetable oil market.

Implications for You

 

Be aware of the price action of soybean oil and soybean meal as they impact the underlying price of soybeans. With the elevated influence that soybean oil has on beans, a rally through 61.55 cents could lead to further strength in the soybean market. Conversely, a break through the recent lows of 54.18 cents without a commensurate strengthening in soybean meal could lead to further weakness in soybeans.

Customers of TFM360 can feel confident that we are continually monitoring the fundamentals and charts and are fully prepared to incorporate them into our recommendations. We will keep you informed as events unfold, and look forward to helping you make the right decisions for your operation.

 

If you have questions about the market, TFM360, and how Total Farm Marketing can help you make the best marketing decisions for your operation, call us at 800.334.9779.

 

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