AEI Premium: Soybean Oil and Meal Prices Remain Strong
By David Widmar
Last fall, we noted high soybean oil prices had pushed the “doughnuts versus diesel” fuel debate into the spotlight, although the trend of more soybean oil going into fuel has been underway for years. Now that it’s been a year since soybean oil prices have turned higher, we are revisiting the soybean crush situation to see where oil, meal, and soybean prices are today.
Historically, soybean oil prices hit a high of around $0.55 per pound between 2011 and 2012 (Figure 1). For most of the last decade, soybean oil prices have been around $0.30 per pound. In 2021, however, prices abruptly jumped briefly above $0.80 per pound and spent most of the year above $0.60. For the calendar year, the average weekly price per these Missouri data tracked and reported by the USDA was $0.65 per pound.
Through May of 2022, soybean oil prices have averaged $0.77 per pound and twice exceeded $0.90 per pound. All else equal, high soybean oil prices make it attractive for soybean processors to buy and crush soybeans. However, the value of soybean meal and the price of soybeans should also be considered.
Figure 1. Missouri Soybean Oil Prices, January 2010 to May 2022. Data Source: USDA’s AMS. Gaps in data indicate a shutdown of the federal government.
Last year we noted that low soybean meal prices created a bit of a headwind for the economics of crushing soybeans. While soybean oil prices were at record highs, meal prices remained below 2012-2014 highs and, through last fall, were trending lower (Figure 2). Specifically, soybean meal prices in early 2021 approached $350 per ton before retreating to almost $300 per ton. For a brief time, the economics of crushing soybeans had record-high oil prices and mediocre meal prices.
For the first five months of 2022, meal prices have been fairly strong, averaging $460 per ton and remaining above $400. Briefly, meal prices exceeded $500 per ton. Although at the highest prices in many years, soybean meal prices were previously above $500 per ton several times between 2012 and 2014.
Figure 2. Missouri Soybean Meal Prices, January 2010 to May 2022. Data Source: USDA’s AMS. Gaps in data indicate a shutdown of the federal government.
Soybean Crush Margin
Figure 3 shows reported soybean prices for the Missouri soybean crushing data. Soybean prices have increased by nearly $4 per bushel since the beginning of 2022, increasing from $13.90 in early January to a recent high of $17.83 in late May (Figure 3). Previously, these data showed soybean prices were briefly above $18 per bushel in 2012.
Figure 3. Missouri Soybean Prices, January 2010 to May 2022. Data Source: USDA’s AMS. Gaps in data indicate a shutdown of the federal government.
So how do all-time high oil prices, high meal prices, and nearly record-high soybean prices net out? Figure 4 shows the soybean crush spreads going back to 2010. Overall, the 2022 situation had been very strong before tumbling in May. Specifically, the crush margin – or an estimate of returns for processing a bushel of soybeans – averaged $2.52 per bushel from January through April 2022. For context, the weekly average since 2010 was $1.46 per bushel. Clearly, the economic signal to crush soybean has been strong since the summer of 2021.
In the last month, however, high soybean prices have sharply cut into the crush margins. In early May, crush margins were estimated at $3.00 per bushel but fell to $1.28 by the end of May.
Taken together, the crush spread remains positive and above $1 per bushel, but high soybean prices have dampened the enthusiasm around soybean oil prices.
Figure 4. Missouri Soybean Crush Spreads, January 2010 to May 2022. Data Source: USDA’s AMS. Gaps in data indicate a shutdown of the federal government.
Soybean Oil Still Dominates
Another way of slicing the soybean processing data is to consider the share of the total value generated that comes from oil (Figure 5). Historically, oil frequently accounts for 25% to 35% of the value of crushing a soybean. In 2011, the share briefly approached 50%.
Last June, soybean oil accounted for more than 50% of the value of processing for the first time. Since then, oil’s share of the economic value has remained very strong. For instance, the share hasn’t slipped below 40% since early 2021.
Figure 5. Share of Missouri Soybean Processing Value from Oil, January 2010 to May 2022. Data Source: USDA’s AMS. Gaps in data indicate a shutdown of the federal government.
Wrapping it Up
Soybean oil prices have remained strong and, compared to last fall, have turned even higher. Furthermore, soybean oil continues to account for a near majority of the economic value of processing soybeans. Lastly, soybean meal prices improved over the last year. However, cash soybean prices have sharply increased throughout 2022 and are also approaching all-time highs. While crush margins had been strong throughout most of 2022, returns turned lower in the May data.
There are several potential implications of the data presented. On the one hand, cash soybean prices approaching $18 per bushel – per this dataset – have put a bit of a damper on the phenomenal run of crush returns observed. On the proverbial other hand, crush returns – due in large part to record soybean oil prices – remain above $1 per bushel. Only a few times between 2015 and 2020 were crush margins higher than the current data. This is to say, crush margins aren’t terrible, despite nearly record-high cash soybean prices. In other words, one could use these data to support the argument that high soybean prices are already cutting into usage or that the outlook for usage remains strong despite high soybean prices.