Soybean Oil Remains Strong

Two years ago, it felt like every third article was about soybean oil, biofuels, and the unlimited potential. Perhaps due to lower commodity prices or the general attention span, soybean oil chatter has waned despite the biofuel trend continuing. This Weekly Insights provides an update on the trends and situation around soybean oil.

Crush Margins Still Strong

On a weekly basis, the USDA reports regional prices of key inputs and outputs for soybean crushing. These prices can calculate the soybean crush spread, which is a measure of crush plant returns. To be clear, this isn’t a true measure of profitability as labor, energy, or depreciation aren’t considered. However, the soybean crush spread does give us an idea of how much value is created when a soybean is crushed into its key components – meal, oil, and hulls.

Figure 1 shows the soybean crush spreads in Illinois. Since 2010, the spread has averaged $1.19 per bushel. On a few occasions, between 2011 and 2014, the spread approached zero.

Since 2021, spreads have been strong at an average of $2.19 per bushel. On a few occasions, the spread has approached $4.00. It’s these strong crush returns that have fueled the enthusiasm for constructing new soybean crush facilities around the Midwest.

In 2023, spreads have been volatile. At the start of the year, the spread was just $1 per bushel. By August, the spread increased to $3.90 per bushel before falling back to $2.

Soybean Oil Disappearance

Last summer, we noted that biofuel has accounted for a growing share of soybean oil usage for several years. In other words, this isn’t exactly a new trend. The latest data reveal biofuel usage of soybean oil has increased at an average annualized rate of 9.5% since 2014. ‘Food, feed, and other industrial’ usage has been unchanged while exports have dramatically fallen. During the 2014/15 marketing year, 2 billion pounds of soybean oil were exported, compared to the 5.1 billion that went to biofuels. For the current marketing year (2023/24), an estimated 350 million pounds of oil will be exported, an 83% contraction. In short, biofuels have been the only source of growth in soybean oil usage.

With ‘food, feed, & other industrial’ usage flat, how long until biofuels are the largest user of U.S. soybean oil? Using the earlier mentioned annualized growth rate of 9.5%, biofuel usage could approach 15 billion pounds in 2025/26, overtaking the food and feed category’s stalled usage of 14 billion pounds per year. Biofuels could claim the top spot in just two years. If this happens, biofuel usage would have nearly tripled in just twelve years.

Wrapping It Up

Soybean oil prices – as discussed in this longer Premium article – have remained historically high since late 2020. Furthermore, soybean oil prices are also the link between positive crush margins (Figure 1) and strong biofuel usage (Figure 2). There is also a global component to the vegetable oil story.

Graphs usually don’t continue up and to the right forever. It’s unclear how long and how persistent soybeans’ biofuel story will last, but the effects will likely continue for years to come.