Premium for US Soyabean Oil Increasing as Industrial Demand Rises

Because of higher demand projections from industrial users, the premium for US soyabean oil has risen to around $150 per tonne compared to South America, driving up prices. According to the US Department of Agriculture (USDA), the premium has risen from $20 per tonne in early April to $400 in June 2021. Furthermore, the premium averaged $270 per tonne from April to August of last year.

According to BV Mehta, Executive Director of the Solvent Extractors Association of India (SEA), during the weekend, the US quoted soyabean oil at $1,932 per tonne free-on-board, while the Netherlands offered it at $1,876. Argentina's offer, at $1,711, was the most competitive, while Brazil's was at $1,725.

Because India imports soyabean oil primarily from Argentina and Brazil, the premium is unlikely to have any effect.

"While food and feed use of all oils in the US is projected to grow less than 1% through the 2022-23 marketing year beginning September," the USDA's Foreign Agriculture Service said in its "Oilseeds: World Markets and Trade" report.

Soybean oil and petroleum prices have risen dramatically this year. Soybean oil prices are up more than 30% in the United States and 20% in South America this month. Petroleum prices, on the other hand, have risen by 45 percent during the same time period, according to the report.

According to analysts, 40% of soyabean oil in the United States is used to produce biofuel, with corn (maize) accounting for the remaining 36%. The issue has gained prominence as a result of the Russia-Ukraine conflict, which has caused food commodity prices such as wheat, corn, oilseeds, and barley to skyrocket.

According to Mehta, nearly 50 million tonnes (mt) of the 240 mt of edible oils produced globally are used for bio-diesel, with additional industrial uses. "In practice, more edible oil supplies are being diverted to fuel." This includes crude palm oil in Indonesia, where 30% of production is earmarked for biodiesel," he said.

In the United States, skyrocketing prices and surging inflation have reignited the debate over food versus fuel, and whether wheat crops should be diverted for fuel. According to the World Resources Institute, food crop conversion efficiencies are low, posing a threat to sustainable food futures.

"Such low conversion efficiencies explain why it takes a large amount of productive land to yield a small amount of bioenergy, and why bioenergy has the potential to greatly increase global competition for land," the study concluded.

"Rising price premiums for US soyabean oil reflect a stronger demand versus supply balance in the United States relative to Brazil and Argentina." The US domestic market is expected to consume 93% of all soybean oil produced this year. When biodiesel exports are taken into account, this compares to 80% in Brazil and 13% in Argentina," according to the USDA.

The United States is also a net importer of vegetable oil, with imports expected to account for a quarter of total domestic consumption. Its total domestic oil consumption is expected to be 9% higher in 2022-23 compared to the previous year. This is in contrast to Brazil, where domestic oil demand is expected to fall in the coming year from 2020/21.

Rising energy prices became the primary price driver for vegetable oils in the mid-2000s. Today's situation has shifted, with rising vegetable oil prices reflecting tight supply.

Droughts in Canada and South America, as well as events in Ukraine and trade restrictions in some countries, have reduced available vegetable oil supplies, according to the USDA.

"Every country's policy is self-centered," SEA's Mehta said. According to the World Resources Institute, biofuels derived from food crops such as maize, vegetable oils, and sugarcane currently account for about 2.5 percent of the world's transportation fuel. It stated that if crop-based biofuels are phased out, the estimated 70 percent calorie gap in 2050 will be reduced to 60%, a significant step toward a more sustainable food future.