The soybean oil market rally, driven by broad energy strength due to the Middle East conflict and US biofuel policy, may have more room to run, analysts toldon Wednesday.
Soybean oil prices reached over 72 cents per pound on Tuesday for the first time since 2022, touching new highs this week.
The base case for the sharp rally is trend-based buying, as traders remain very bullish on soybean oil demand prospects amid last month's bullish Environmental Protection Agency mandates, according to Rhett Montgomery, DTN analyst.
In March, the EPA finalized the Renewable Fuel Standard "Set 2" final rule, increasing biofuel blending quotas for 2026 and 2027 and reallocating the 2023-2025 exempted renewable volume obligations for the 2026 and 2027 compliance years.
The EPA estimates that to meet the historic 2026 and 2027 volume levels, biodiesel and renewable diesel production and use will need to increase by over 60% from 2025 levels.
Walter Cronin, Co-Founder and President of White River Nutrition, which develops and operates oilseed processing facilities in the US, said the soybean oil rally is being fed from many different angles.
"The [Iranian] war and soaring global demand for any type of fuel or biofuel are major contributors as well," Cronin said.
In recent months, soybean processors have noted that soybean oil has risen above the value of soybean meal.
"Soybean oil contribution to margin has held closer to 50% for some time now; it is not a new driver. Soybean oil's contribution is likely to remain around this level through the RVO's Set 2 period of 2026 and 2027," Cronin said.
Analysts said that the soybean rally has room to run. As long as biodiesel and renewable diesel margins remain profitable and diesel prices continue to soar, soybean oil can move even higher, Cronin said.
"At the end of the day, fuel production, like soy processing, is a margin business. As long as the biodiesel and renewable diesel industries have a margin, they will buy soybean oil as a feedstock," Cronin said.
He added that one cannot ignore the fact that global freight rates are soaring. "So, prices for other feedstocks like foreign-sourced used cooking oil are moving sharply higher on a delivered US basis, which gives domestically produced fuels an advantage as a feedstock just on freight differentials," Cronin said.
David Miller, Decision Innovation Solutions Economist, said the impact of the US biofuel policy has not yet been fully reflected in the market.
"The general run-up in crude oil and diesel prices is probably the reason for 80% of the recent rise in soybean oil, while the biofuels policy is about 20%. Probably have not yet fully priced in the RVO. Soy oil could move another 10-20% higher from here as the RVO is fully priced in," Miller said.
If crude oil prices fall back toward $70 per barrel, that will limit the rise in soy oil prices, Miller said.
"As soy oil prices rise, some substitution away from soy oil for food use will occur toward other oilseeds, such as canola, sunflower, and corn," he said.
The US-Iran conflict's disruption of global petroleum product supply chains underscores the wisdom of domestic biofuel policy.
"In essence, beggars cannot be choosers, and countries are moving quickly to amend policy to take immediate shipment of biofuels out of need rather than designed policy," Cronin said.
He added that the global perspective on biofuels is permanently altered from this point forward. Countries will reorient their policies toward higher inclusion rates and local production of biofuels from agricultural feedstocks.