Fundamentally Speaking

Third Tightest U.S. Soybean Oil Stocks-to-Use Ratio

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst
Chart by Joel Karlin, DTN Contributing Analyst

The mega rally in soybean oil continues as burgeoning industrial demand for biodiesel (with many new facilities coming on line and competing for feedstocks) is now being joined by higher usage in the food sector.

Increased indoor dining and greater patronage at various away from home eating establishments is resulting in greater demand for cooking oils.

We should also note that the global total vegetable oil, world soybeans and of course the U.S. soybean oil ratio are among the tightest in years.

This is reflected in this graphic which shows the world total vegetable oil, world soybean oil and U.S soybean oil stocks-to-use ratios on the left-hand axis vs. the percent difference of the USDA average soybean oil price for that marketing year is of the prior five-year average plotted on the right-hand axis.

Should note that world vegetable oil production and stocks are dominated by palm oil, which accounted for 36% of global vegoil production this year (a record) and soybean oil that accounts for about 29% of output.

Canola and sunseed account for 13% and 9% respectively with cottonseed, coconut, peanut, olive and palm kernel oils accounting for smaller percentages.

This year's global vegoil stocks-to-use ratio at 10.7% is the lowest since the 2010/11 season while the world soybean oil stocks-to-use ratio itself at 7.6%, other than the 2015-2018 period is the lowest going back at least till the 1983/84 year.

The U.S. soybean oil stocks-to-use ratio at 7.4% has only been less than that twice since the 1987/88 year, back in the 2013/14 season at 6.1% and a decade earlier at 6.4% in 2003/04.

As for the impact on price, the last WASDE report earlier this month showed a one cent per pound increase for soybean oil for the 2020/21 season to 41.0 cents per pound.

This is the highest price since 47.13 cents back in 2012/13 and is 36.3% higher than the past five-year average price of 30.07 cents per pound.

This is a sizable gain from the prior five-year average, in fact the fourth largest increase since the 1987/88 season, but we have seen much larger increases from prior five-year averages in past.

The last time the world vegoil stocks-to-use ratio was this low was in the 2010/11 season, the 2007/08 year when soybean oil went to its highest point ever and the 2003/04 season when as noted the U.S. soybean oil stocks-to-use ratio was the second lowest ever.

The point here is even with this week's correction, bean oil prices remain strong both on the board and in the cash market where end-users supposedly are paying way over listed prices to obtain needed supplies of soybean oil so this year's soybean oil price by the end of this marketing year could be closer to the 76% increase seen in 2003/04 prices relative to the 1998-2003 average or the 2007/08 93% rise vs its prior five year average.


To comment, please Log In or Join our Community .