Canada Markets

Soybean Oil's Premium to Palm Oil May Not Be Enough to Discourage Exports

Mitch Miller
By  Mitch Miller , DTN Contributing Canadian Grains Analyst
With the amount of soybean oil used in biofuel production expected to increase by 3.25 billion pounds in 2025-26 from 2024-25 levels, exports will have to fall sharply, and it is the market's job to ensure the relative price is strong enough to enforce that. As you can see by this chart, that may not be happening as the premium to palm oil declines. (DTN ProphetX chart)

Arguably one of the most important factors for vegetable oil markets to monitor going forward is the price spread between soybean oil and palm oil. With soybean oil used in biofuel production set to soar in 2025-26, there is no room for exports to see a repeat of last year's surge. It is the job of the market to ensure that doesn't happen; yet it doesn't seem to be too interested in fulfilling that obligation, focusing instead on EPA-related delays in getting that biofuel production ramped up.

As a review: In July, USDA increased its estimate of biofuel production soy oil use by a whopping 26.5% or 3.25-billion-pound for 2025-26 compared to 2024-25 levels. That represented an increase of 1.6 billion pounds for 2025-26 from the June update thanks to the passing of the budget bill that contained significant support for the industry.

Due to limited supplies, 2025-26 estimates for soybean oil exports were cut by 1 billion pounds from the June report with a (currently) 1.8-billion-pound reduction from 2024-25. It will now be up to the market to ensure exports do in fact remain negligible for the year to come. A repeat of the record-setting discount to palm oil that spurred the increase in 2024-25 exports (from an initial estimate of 600 million pounds to the current estimate of 2.5 billion pounds) cannot be allowed to happen.

Yet here we are. With the peak optimism in July, the soybean oil premium to palm oil hit a high of $247.63/mt, a level not seen since October 2023. That did choke off export sales interest, eventually resulting in the 2024-25 export estimate trimmed from 2.6 billion pounds to 2.5 billion pounds.

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Then traders turned their focus to infighting over small refinery exemptions and delays to EPA rules. As you can see from the accompanying chart, the resulting break in soybean oil prices while palm oil remained firm caused a decline in the spread to just around the $50/mt level.

With that, export interest has again picked up with the last weekly export sales report to be seen until the government shutdown ends (for the week ended Sept. 18) showing 2025-26 sales already reached 172 million pounds. And the marketing year doesn't even begin until Oct. 1.

With the current annual soybean oil export estimate standing at a mere 700 million pounds, having 24.6% of that already sold does suggest revisions higher are likely. Especially when the market is encouraging them.

It's worth pointing out that last year's dramatic increase in exports (from early estimates of 600 million pounds to eventually hitting 2.5 billion pounds) was largely due to the record discount of soybean oil prices to palm oil. By early December, soybean oil bottomed out at a $287.72/mt discount to palm oil. So, the current $50/mt premium is nowhere near the level that would inspire such interest. But it does need to be monitored.

Looking at the technical picture for the two commodities, the monthly charts still suggest the break into 2024 was simply a huge bull market correction off the 2022 highs. The summer rally did result in minor resistance at 51 and 54.50 being surpassed and resistance in the 60 cent/pound area is yet to be tested. Significant resistance is not seen until 65 cents.

The weekly and daily charts still have excellent-looking saucer-bottom formations that have been forming since mid-2023. The longer it takes to form, the greater the upside move is should bullish developments allow it to play out. With a breakaway gap over resistance at 51 cents, the saucer bottom was confirmed. With delays in the EPA decisions, prices did fall back to fill the gap (which isn't abnormal) with higher prices normally expected to follow.

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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.

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

Follow him on social platform X @mgreymiller

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