Soybean Oil Erases Overnight Lows Following EPA Announcement

Soybean oil futures traded in a 1.91-cent range on Thursday as overnight pressure from a sharp decline in palm oil prices gave way to a sharp rally in soybean futures during U.S. trading hours. News that the Environmental Protection Agency (EPA) would take no position on the availability of small refinery exemptions (SREs) for the 2019 compliance year due to ongoing litigation also contributed to the strength in soybean oil prices.

Despite the wide range, it was still only the second widest in 2021, with trading on January 4 featuring a 2.32-cent range. During the 10 trading sessions in 2021, the average range has been 1.33 cents (roughly three percent), and eight of the 10 days have featured a range of more than one cent. The increase in the intraday volatility is due, in part, to the recent drop in palm oil futures, which has weighed on soybean oil in the overnight session before rallying soybean futures lift prices during U.S. trading hours.

The sharp divergence in prices drove the spread between the March soybean oil and palm oil contracts above 3 1/2 cents, the highest it has been since October 5. With palm oil traders turning bearish in recent days, the spread could continue to widen in the short-term. However, building soybean oil stocks and historically tight palm oil inventories will likely pressure the spread in the longer term.

The soybean oil rally also reversed the recent trend in the spread between soybean oil and heating oil futures (HOBO), driving it to nearly $1.66 per gallon. The Jacobsen still expects weakness in the HOBO spread in the short term, but if the leg lower is complete, the spread will likely retest the high above $1.80 before the end of the month.

A key factor determining the direction of soybean oil prices and spreads will be the monthly National Oilseed Processors Association (NOPA) report, scheduled for release on Friday. Analysts expect NOPA to estimate December crushing volumes among its members at 185.2 million bushels. The Jacobsen’s pre-report prediction of 185.9 million bushels is slightly above the average of analysts’ expectations and just above the middle of the range from 182 to 188.5 million bushels. Market expectations for NOPA soybean oil stocks range from 1.55 to 1.8 billion pounds, with an average of 1.71 billion. The Jacobsen expects inventories to build by nearly 200 million pounds from 1.56 million gallons in November to 1.75 billion at the end of December.