Canada Markets

USDA will undoubtedly have to increase its 2024-25 soybean oil export estimate for the third time this marketing year following strong sales in February. With another flash sale announced Friday of 20,000 metric ton (mt), or 44 million pounds, total commitments already exceed the current USDA annual projection (seen in the accompanying chart in green) -- only five months into the marketing year.

Total commitments (outstanding sales plus exports to date) have hit 1.607 billion pounds compared to USDA's current estimate of 1.6 billion for the year. It's worth noting it was already revised higher from 1 billion pounds, which was itself revised up from the initial estimate of 600 million pounds. Given the unusual discount to palm oil that remains, it is difficult to predict how high the final tally may be.

The resurgence of interest in soybean oil by importing countries comes from strong palm oil prices thanks to reduced production at a time of increasing blending requirements in Indonesia and India in particular. The result was a record-large discount for soybean oil compared to palm oil in the fall of 2024. By early December, nearby soybean oil futures hit a record discount of $221 USD/mt versus nearby palm oil futures. In fact, up until September, soybean oil had never been at a discount to palm oil.

Corrections in both markets resulted in the spread going back to a more normal $65/mt premium for soybean oil, and export sales dried up by mid-January. Not for long, though, and by the end of February, soybean oil was back to a $50/mt discount to palm oil, and export interest picked back up.

With the recent fund-led selloff thanks to tariff threats -- trade tensions on geopolitical risk hurting soybean oil more than palm oil -- more of the same relative weakness in the price of the former could be expected for the foreseeable future. USDA's export projection will clearly need to be increased but how much is yet to be determined.

It is worth noting that USDA's first look at 2025-26 soybean oil exports at the 2025 Agricultural Outlook Forum penciled in an increase to 1.675 billion pounds, suggesting they are expecting more of the same.

For anyone questioning the export potential, the 25-year high mark (as seen in the accompanying chart) was 3.359 billion pounds in 2009-10 followed closely behind by 2010-11 at 3.233 billion. Clearly there is an inadequate supply to return to anything close to that, but it does highlight the implications export potential could have.

So, what now? The current soybean crush is setting occasional monthly records as it is but may need to be pushed further to supply the additional demand. Ending stocks of soybean oil remain slightly above 1.5 billion pounds for both 2024-25 and 2025-26, according to USDA estimates. Those appear to be minimum pipeline levels, so little wiggle room for reductions exists.

That brings us to the importance of canola oil imports ahead of expected tariff implementations. In 2024, the U.S. imported 1.405 billion kilograms (kg) of crude canola oil and 1.937 billion kg of refined canola oil. That amounted to 7.368 billion pounds of combined imports. How can that be offset by soybean oil? It can't be -- without drastic cuts in use.

That takes us to the elephant in the room -- confusion and conflicting signals about the Trump administration's support for biofuel. It has been over two months since blending credits expired with no official word on their extension or replacement. Clarity on the path forward is anxiously awaited.

With the use of an executive order, President Donald Trump established the National Energy Dominance Council on Feb. 14, which included "biofuels" in the list of "amazing national assets," suggesting support for the industry should not fade. Given the anti-climate initiative stances seen to date, a return to blending credits may be the final outcome, but time will tell.

Analysis of market participants themselves shows the most likely reason for heavy selling seen over the past six trading sessions. Money managed funds had started selling out of their long positions by Tuesday's cutoff, net sellers of 10,420 contracts during the week ended Feb. 25. They were still net-long 43,052 at that time with much of the selling seen since likely tied to the liquidation of many of those positions. Given the tariff and trade uncertainty and geopolitical tensions, reducing risk first and asking questions later would be normal for that group.

Looking at the technicals, monthly and weekly continuation charts contain similar clues: a bounce from long-term support at 38 cents per pound (previous resistance); a clear break of the downtrend in place from the 2022 market peak; then multiple failed attempts to break over resistance found just under 50 cents/pound at the 100-week moving average. The daily chart had turned bullish, according to a variety of indicators, but widespread liquidation across most asset classes presented a risk to that.

In the long run, exceptional demand, both domestically and internationally, should provide strong support for both soybean oil and canola once the political uncertainty fades. In the meantime, it's hard to rationalize significant disruptions to the flow of canola oil.

I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

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Farmers face a rapidly changing political environment as they gear up for spring planting. The news around tariff negotiations, budget cutting efforts and potential tax reform may keep the markets guessing, but our experts will help farmers put the news into perspective. Join us March 7, 2025, for DTN's next Ag Summit Series: "Spring Forward: Ag Policy, Weather Trends and Market Insights" by registering at https://dtn.link/….

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Mitch Miller can be reached at mitchmiller.dtn@gmail.com

Follow him on social platform X @mgreymiller

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