Soybeans’ fuel for the tank is doing three times better than its fuel for organics.
Prices of soybean oil, or soyoil, one of the main feedstocks for biofuels, are up 66% on the year. Soybeans, the raw material that gets crushed mostly into oil and animal feed—and to a lesser extent as food for humans—are up just 20% since the start of January.
Most-active soyoil hit an all-time high of 73.74 cents per pound on the CBOT, or Chicago Board of Trade, on Monday.
Booming global demand for vegetable oils—coupled with an expected tightening in soyoil supplies over the next year—have kept futures at historic levels.
Chart courtesy of The Hueber Report
Money managers barely adjusted their views on CBOT soybeans and soybean oil much since the beginning of the month. As of June 1, their soybean net long stood at 138,788 futures and options contracts, down fewer than 1,000 on the week. They extended their net long in soybean oil by fewer than 1,000 contracts to 86,084.
The US Department of Agriculture (USDA) predicts lower supplies, lower exports, higher crush and higher ending stocks for its 2021-’22 soybean outlook. The department's latest WASDE, or World Agricultural Supply and Demand Estimates, report released on May 12 forecast continued higher usage of soyoil for biofuel production.
The U.S. soybean crush for 2021-’22 is projected at 2.2 billion bushels, up 35 million from the 2020-’21 forecast, reflecting favorable crush margins. The USDA also forecasted that soybean oil is expected to hold a higher share of the crush value as prices are buoyed by increased use of soybean oil as a feedstock in an expanding renewable diesel industry.
The May WASDE marked a change in the USDA’s biofuel forecast, as “biodiesel” is replaced by “biofuel” and will now include projected soybean oil use for both biodiesel and renewable diesel as reported in the US Energy Information Administration’s Monthly Biofuels Capacity and Feedstocks Update, which has replaced the EIA’s Monthly Biodiesel Production Report.
The USDA currently predicts 12 billion pounds of soybean oil will go to biofuel production in 2021-’22, up from 9.5 billion pounds in 2020-’21 and 8.658 billion pounds in 2019-’20.
This makes the June WASDE report, due this Thursday, super important for soyoil investors and traders who are expecting the USDA to raise the stakes for the bulls in the market with an even more favorable on crush and consumption.
New Record High Of 76 Cents For Soyoil?
So, how much higher could soyoil’s front-month contract on the CBOT go? Investing.com’s Daily Technical Outlook suggests new peaks between 74 and 76 cents for the July soyoil contract on CBOT, depending on which of its top two variants—Fibonacci or Classic—appeals to market participants.
Under the Fibonacci model, the next all-time high for soyoil would be 74.39 cents. In the Classic mode, the peak could be as much as 76 cents.
Notwithstanding the strong technical positioning and overwhelmingly bullish fundamentals for soyoil, some are questioning the sustainability of the rally, wondering aloud if the market’s current momentum can hold without breaking.
One of those doubters is Dan Hueber, veteran grains analyst and author of The Hueber Report. As with many commodity markets, Hueber believes it would be premature to write off the bulls just yet. As he questioned in his Tuesday post:
“But the question would seem to be, do they have enough of a story to carry and sustain this market into new highs?”
With its 66% rally for the year, soyoil is the second biggest commodity winner for 2021 after lean hogs futures.
Hueber noted that Monday’s push for the 73.74-cent record high did not hold that well, with the July contract descending into 2.4% selloff by the closing bell. Referring to Thursday’s WASDE report and the fund positioning in soyoil due in Friday’s weekly update by the Commodity Futures Trading Commission of its Commitment of Traders report, Hueber said:
“The completion of the 5th cycle of 90-calendar days since the bottom in March last year is coming up on the 11th, and if we continue to push higher into that date, we may have a setup for a peak.”
“We should find out the answer to that within a few days.”
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.