Soybean oil is the most popular and widely produced vegetable oil in the USA. Thanks to its properties like great blending ability, low levels of saturated fat, and high proportions of poly- and monounsaturated fats, soybean oil is the preferred oil for the food industry and household consumption in the country. The growing demand for soybean oil has led to the market’s spectacular growth. Having said that, people dealing with soybean manufacturing and trading are having a tough time as the soybean oil price has recently seen significant fluctuations, primarily due to new import policies, unpredictable crop yields, trade tariffs, and global tensions.
This article looks at significant factors impacting soybean oil prices in the USA.
1. Boost In Soybean Production
The growing soybean production in the USA is worrisome for soybean oil manufacturing companies. USA’s soybean production for the 2022-23 marketing year is slated to reach a record level of 125 million mt due to an all-time high acreage forecast. With this increased production, U.S. soybean oil price is expected to go down further due to concerns over a saturated market. This boosted soybean production can adversely affect the soybean oil market’s future growth. Unless there is an ease in export regulations and global tariffs, USA’s soybean oil reserves can far surpass the demand, leading to a bearish soybean oil market.
2. Availability of other vegetable oils
Since there are many edible vegetable oils, the availability of these cooking oils reduces the reliance on soybean oil, impacting its demand. Corn oil, palm oil, coconut oil, canola oil, rapeseed oil, olive oil, sunflower oil, sesame oil, and peanut oil are some commonly used vegetable oils in the USA. A boost in production in some of these oils generally reduces their prices and makes them more cost-effective than soybean oil.
Among all the oils mentioned above, palm oil prices severely impact soybean oil prices. Sunflower oil, too, has made a serious impact on soybean oil prices recently. Russia’s invasion of Ukraine has disrupted sunflower oil export from its largest exporter, Ukraine. As sunflower oil became scarce, many people turned to soybean oil, rapidly boosting its demand.
3. Impact of Climate
Climate is a significant factor impacting the soybean crop yield. Soybean cultivation requires a moderately hot summer, with temperatures between 18 to 30-degree celsius. However, temperature lower than 18-degree celsius or above 35-degree celsius causes stunted crop growth.
According to data, 90% of the USA’s soybean production happens under rainfed agriculture, and recent draughts have made the situation bleak for soybean farmers. The most adverse impact on soybean crop yields is caused by extremely high temperatures and minimal soil moisture during summer crop reproduction. Moreover, extreme temperatures like heat and drought at crucial stages of crop growth can affect the quantity and quality of the harvest. Data suggest that soybean production in the country’s southern parts is more sensitive to climatic extremities.
4. Global supply constraints
Recent global tensions, including the conflict between Ukraine and Russia, have checked the free flow of goods between countries. Countries like the USA are now more conservative in maintaining their domestic stock of vegetable oils instead of selling them to other nations readily. Soybean oil is one of the top American exports to China. However, due to global political tensions, trade war, and bilateral complications, USA’s soybean export to China has taken a hit.
The latest data states that China has lowered its soybean imports from the USA due to price issues and a long-standing tariff war. On the other hand, China’s other significant supplier of soybeans, Brazil, has been aggressively selling beans to China. If Brazil becomes a steady replacement for the USA, USA’s soybean oil prices may fall significantly due to weak international demand.
5. Fluctuating Supplies of Palm Oil
Among vegetable oils, palm oil is the most utilized cooking oil, accounting for almost 40% of the vegetable oils produced worldwide. Palm oil is produced in 44 countries and is the preferred vegetable oil for cooking. Therefore, a rise in palm oil imports also negatively impacts soybean oil prices in the USA.
Malaysia and Indonesia are the two largest exporters of palm oil. The Indonesian government’s recent palm oil export ban created panic in the vegetable oil markets and skyrocketed the demand for other popular vegetable oils like soybean oil. When the palm oil ban was in place, soybean oil prices reached 91 cents/lb from the previous levels of 70 cents/lb, a price hike of 30%. Therefore, future soybean oil prices in the USA will depend on palm oil imports to a large extent.
The increasing demand for renewable biofuels is another reason behind the upward-moving prices of several vegetable oils. USA’s energy companies have revealed their plans to boost the biofuel capacity fivefold by 2030, soybean oil being a primary feedstock. Demand for soybean oil for biofuel production will increase further, with more new biodiesel plants coming up. So, we can expect more upside in soybean oil prices.
Several complex factors control soybean oil prices in the USA. A proper understanding of such issues can help us understand soybean oil price dynamics and its future trend.