By Brian Harris, Global Risk Management Inc.

As soybean oil futures prices and forward inverses have continued to escalate, it is important that we not lose sight of soybean oil’s share of product value in the mix of decision making. Historically, it has only been under unusual and generally short- lived circumstances where the U.S. soybean processor was crushing for oil as much as they were for the soybean meal. It’s become increasingly clear however that this is exactly what the market will need to do until new crush capacity comes online given the advent of the large-scale soybean oil demand from the “Renewable Diesel” sector over the last year (especially bad timing for the buyer as demand for food surges post COVID-19).

Until recently, the common perception had been that spot soybean oil share below 30% should be considered value. As the recent announcements for new soybean and canola crushing capacity are lagging the buildout in the renewable diesel side by anywhere from 1 ½ to 2 years, that “value” proposition at 30% has more than likely shifted up to a range between 38 and 40%.

While this does not have to directly correlate to upward/downward movement in the soybean oil futures, it will nonetheless be an important tool for end users to determine value points on forward purchases given the new structure in the soybean complex.

Commodity trading is not suitable for all investors. There is an inherent risk of loss associated with trading commodity futures and options on futures contracts, even when used for hedging purposes. Only risk capital should be used when investing in the markets. Past performance is not indicative of future results.