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In recent years we’ve observed an important change within the space of soybean crush trading, a shift in focus from soy meal to oil. Historically, as the cost of soy oil was relatively negligible, crush margins have been mainly driven by the price of meal. Lately, oil has become more expensive due to increased demand for biodiesel blending. Prices for these two commodities, both as subproducts of soybeans, move in opposite direction:
Crush margin = Soy meal value + soy oil value – soybean price (crush margin = (soybean meal price/2000*44) + (soybean oil price/100*11) – soybean price
Soy meal price = (crush margin + soybean price) – (soybean oil price X 0.11)/(44/2000)
But the rise in the cost of soy oil is not always consistent, and market trends are constantly subject to high volatility.
From the end of 2022 until recently, as a result of the inverse correlation described above, we’ve seen soy meal prices soar against weaker soy oil prices. The downward trend in oil prices was partly due to diminished demand from the biofuel sector as US biodiesel and renewable diesel production in the November and December months went down following the closure or interrupted activity by several refineries.
However, the closure or suspension of refineries is not an enduring event and, therefore, is not a reliable basis for future calculations.
In fact, biodiesel plants are often subject to infrastructural change, and while some of these did close last year, others are expanding and new ones are opening. Despite expectations among some analysts of sharp declines in biodiesel capacity, this only dropped by about 150 million gallons in 2022 and remains above two billion gallons per year.
As refineries get back on track, demand for soy oil will likely increase again, as one of the primary feedstocks for biodiesel and, to a lesser extent, renewable diesel and while, since the end of 2022, soy meal prices have gone up, in the long run, the rise in demand for oil will upset the trend.
If demand for soy oil rises again, pushing prices up, then soy meal will become relatively cheaper. Because soy meal is used as a protein-rich animal feed, its price is not just connected to that of soybeans and oil but also to that of other meals, feed ingredients and, further down the chain, to the price of livestock.
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The cost of soy meal also influences the price for dried distillers grains (DDGS), often used as an economical alternative or partial replacement for meal. As the cost of soy meal moves, then the cost of DDGS follows in the same direction and so do other feeds that compete within the same market, for example, corn meal.
Soybeans, which are the primary product from which meal and oil are extracted, have a huge impact in determining the price for both subproducts; therefore, their production and sales will influence, at least to an extent, prices for animal feeds.
US soybean sales don’t just depend on domestic production. In the wider global market context, lately, US sales have had to compete with record-level Brazilian exports. This has put pressure on soybean prices and meal prices have spiked as a consequence.
However, right now, Brazilian soybean harvest progress is showing a mixed picture, with mid-February figures coming short of the estimates that local consultancy Agrural had previously reported. Most of the key growing regions within the country are seeing frequent precipitations, and while rainfall can boost production, this often comes at the cost of quality, which is negatively impacted. If Brazil’s crop output results in lower sales, then global prices for soybean may start to soar and drive oil prices up, pressuring meal and feed cost.
If the price of soy oil can be so determinant in the cost of soy meal and other feeds, then the uncertainties around oil demand and trading patterns will make the feed market more volatile. Feed market players, such as producers, traders and livestock farmers, must keep up to date with all movements in the oil markets too, in order to effectively mitigate the financial risks that come with such high volatility.
Our experts in the veg oils and meals industry monitor the markets daily and provide verified, accurate data and analysis, as well as spot prices, reports and news. In order to ensure a robust assessment of market trends and prices, our analysts survey the full spectrum of traders, buyers and brokers. We help you navigate the uncertainty within the market today so that you can make the right business decisions.
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