Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Soybean Oil Is the New Star in Commodity Markets
Transcript
- Lucas: You look at the commodity board today, and most of the usual suspects are doing what they've done all summer. Crude's up on fresh Middle East headlines — CL at 82 and change, Brent pushing 89. Gold is soft, copper is steady. But there's one market that has quietly been on an absolute tear, and it's not getting the attention it deserves. Luna: Let me guess — soybean oil? Lucas: Exactly. Soybean oil futures have rallied more than 10 percent over the past month. We're talking about a market that for years was kind of the boring cousin in the ag complex. Suddenly it's the star. And the move tells you a lot about where we are in the broader economy right now. Luna: So what's driving it? Because it's not just one thing, right? Lucas: It's three things, really, and they all hit at once. First, the EPA — back in late June, they released the final biofuel blending mandates for 2026, and they raised the renewable diesel target much more than the market expected. That directly boosts demand for soybean oil as a feedstock. Luna: Right, because renewable diesel is basically just hydrotreated vegetable oil. And soybean oil is the biggest source in the US. Lucas: Exactly. So you have this policy-driven demand surge. But then, second, you have a supply shock. Argentina — which is the world's largest exporter of soybean oil — has been in a severe drought. The latest crop estimates from the Buenos Aires Grain Exchange show soybean production down 12 percent year-over-year. That means less crush, less oil available for export. Luna: And that's happening just as global demand for vegetable oils is rising, partly because of the biofuel mandates but also just population growth and dietary shifts. Lucas: Right. And then the third factor is palm oil. Malaysia and Indonesia — which together account for about 85 percent of global palm oil production — have been dealing with labor shortages and aging trees. Output is flat to down. So buyers who would normally use palm oil are switching to soybean oil, adding even more pressure. Luna: So it's a perfect storm. Demand up from biofuels, supply down from Argentina, and substitution from palm. No wonder soybean oil is rallying. Lucas: And it's not just futures. If you look at the crush spread — that's the margin from processing soybeans into meal and oil — it has widened significantly. The oil share of the crush value is now above 45 percent, which is very high historically. Normally it's around a third. Luna: That means crushers are making money hand over fist right now. Which is probably good for companies like Bunge and archer daniels midland. Lucas: Exactly. Bunge is up about 8 percent in the last month. ADM is up around 6. But here's the thing — this rally in soybean oil also has implications for food inflation. Cooking oil is a big input for processed foods and restaurants. If soybean oil stays elevated, we could see pressure on margins for food companies and eventually higher prices at the grocery store. Luna: And it comes at a time when headline CPI is actually cooling a bit. June CPI came in at 332.6, down from 333.98 in May. So core inflation is easing, but food inflation might get a second wind from this. Lucas: That's the risk. The Fed is watching core PCE more than CPI, and core PCE is still sticky — it's at 130.1 in May, up from 129.67. If food costs start pushing headline numbers back up, that complicates the narrative. But so far, the market is treating soybean oil as a supply-driven story, not a demand-driven inflation spiral. Luna: It's interesting — you talk to people about the economy and they feel inflation everywhere, but the data says it's moderating. Maybe this is one of those categories where the pain is real even if the averages are going down. Lucas: Yeah. And speaking of things that are real but easy to overlook — listener support. If walking through the economy with us has made something click, or if you've found yourself using a concept from the show in a conversation, that's the kind of thing that tells us we're on the right track. And it's also what keeps this show ad-free and independent. If that's worth a dollar or two to you, you can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it really does help. Every bit goes straight into making the show better. Lucas: So back to soybean oil — another dimension to watch is the export data. The USDA's weekly export sales report last Thursday showed a big jump in soybean oil commitments to destinations like South Korea and the European Union. That suggests the demand isn't just domestic biofuel mandates — it's global. Luna: The EU has its own renewable energy targets, and they're also short on rapeseed oil this year because of a poor harvest. So they're turning to soybean oil too. Lucas: Exactly. And here's the kicker: the soybean oil rally is starting to pull up soybeans themselves. Look at soybean futures — they're up about 5.6 percent in the last five days, which is a big move for a storable grain. Normally beans follow meal, not oil, but right now oil is leading. Luna: So the whole complex is getting repriced. What about the other side — the meal? If oil is taking a bigger share of the crush value, that means meal is relatively cheap. That could boost demand for livestock feed, which is good for cattle and hog margins. Lucas: It's a fascinating ripple effect. You have higher soybean oil → cheaper meal → lower input costs for protein producers → potentially lower meat prices down the line. But that takes time. In the near term, the big story is that vegetable oil markets are in a structural shift. The renewable diesel boom is not a one-year blip. The EPA targets ramp up through 2030. Luna: So this could be a multiyear theme. It reminds me of the early days of the ethanol boom, when corn prices doubled. But with soybeans, the global demand base is even broader. Lucas: Right. And the interesting question is whether supply can catch up. US farmers are already planting more soybeans — the USDA's acreage report in June showed a 3 percent increase. But even with that, stocks to use ratios are expected to tighten. So the market is likely to stay bid. Luna: Unless we get a big weather event that boosts yields. Or unless the biofuel mandates get rolled back, which seems unlikely given the current administration's support for renewables. Lucas: The administration has been pretty consistent. The EPA rule was actually slightly more aggressive than the proposed rule, which caught the market off guard. So the policy tailwind is real. And on the supply side, Argentina's drought isn't going away quickly — the La Niña pattern is expected to persist into the southern hemisphere spring. Luna: So for listeners who trade commodities or just want to understand what's happening at the grocery store — keep an eye on soybean oil. It's the hidden driver of a lot of things right now. Lucas: Absolutely. And we'll be watching how the crush spread evolves, whether palm oil prices start to catch up, and whether the rally starts to spill over into other vegetable oils like canola. There's a lot to track. Luna: Good stuff. Thanks Lucas. Lucas: Thanks Luna. And thanks to all of you for listening. We'll be back tomorrow with another angle on the commodities economy.