Vegetable Oils Developments
The continued warfare between the US and Iran unsurprisingly boosted biofuel prices, as alternatives both long and increasingly short term to crude oil and gasoline. The price of US soybean oil futures reached close to 80 cent/lb. by early June. But the peace talks and tentative signature of a deal between the warring parties helped bring prices back by 10% off the highs by the end of the month.
In SOYBEANS, The USDA’s June WASDE report was uneventful, with stocks levels unchanged. month-overmonth. Planting and crop ratings to date have been favorable, suggesting above-trendline type yields. However, often in past years, ratings and weather in June have little bearing on final yields with soybean yieldsnormally determined in August. Following the run-up in prices earlier this year on a combination of Chinese trade deal rumors and supply concerns (fertilizer) stemming from the Iran war, prices have since retraced the entire move and move as China never showed up as a buyer.
Beyond the impact of the Iran war, SOYBEAN OIL prices in the US had also rallied in anticipation of higher demand and a bullish renewal of the US Biofuels RVO (Renewable Volume Obligations) mandate, which was confirmed in late March. The confirmation had been delayed by lengthy consultations and policy disputes between oil refiners and biofuel producers over import credits, small refinery exemptions (SREs), and other issues.
The Environmental Protection Agency (EPA) requires oil refiners and importers to annually blend different types of biofuels or buy Renewable Identification Number (RIN) credits with the main uncertainty pending over the size of this year's quota. Traders expecting high quotas had already boosted the price of RINs as well as soybean oil futures to multi year highs in the run up to the decision.
The March 27 ruling includes a record-high mandate of 26.81bn RINs from total renewable fuel blending this year and 27.02bn RINs next year. EPA sets total blend requirements and requires that a portion come from lower-carbon "advanced" biofuel types including biomass-based diesel. A gallon of corn ethanol generates one RIN, while more energy-dense fuels like renewable diesel earn more.
The uncertainty surrounding U.S. policy this year has caused drastic swings in carbon credits and RINs but the bias of trading action has favoured a White House decision aimed at supporting the farm community.
However the Trump administration's future stance on the Renewable Fuel Standard (RFS) and related biofuel policies still leaves room for significant uncertainty in the market. This includes the decision regarding (SREs), which could reduce the demand for biofuels such as biodiesel that utilize soybean oil as a feedstock. Such exemptions, if broadly applied, may lead to decreased soybean oil demand and exert downward pressure on prices.
Whatever happens with the US mandate, U.S. exports could still recover enough to offset renewed weakness in biofuel demand. Although highly unpredictable, the White House may still choose to boost the renewable diesel industry as both big agriculture and big oil have been supportive in recent years. A president whose recent pronouncements in trade and finance have sparked major volatility elsewhere may soon turn his attention to agriculture and energy with unpredictable results.
