Fundamentally Speaking

Seeing action like we saw a month ago as soybean oil contracts are once again on a tear, carrying all other oil markets with it.

Bean oil's new contract highs were also supported by recent contract highs in Malaysian palm oil futures.

In prior posts we have discussed the very bullish situation in the world vegetable oils markets where the stocks-to-use ratio is much tighter than that for the world protein meal or world oilseeds situation.

Reduced crops of those oilseeds that have a higher oil content such as rape and sun is responsible along with strong fundamentals for palm oil which is the largest produced and utilized vegetable oil in the world.

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 as increased indoor dining and greater patronage at various away from home eating establishments results in greater demand for cooking oils.

Even though both bean oil and its share of the combined soybean crush value is the highest since April of 2012, both have been higher with bean oil over $0.65 per pound and occupying more than half the crush value back on the summer of 2008, so this rally could have a ways to go.

This chart shows the 10, 20 and 30-year seasonal moves of the Central Illinois soybean oil percent of the combined soybean crush value on the left hand axis and years where soybean oil's share of the combined soybean crush value exceeded 45% on the right hand axis.

Those years, using the soybean oil marketing year basis of October 1 to the following September 30, include 1994/95, 1998/99, 2007/08 and the last year of very high soybean oil and share of crush value which was the 2011/12 season and of course we have included the current season.

Note that the 20 and 30-year seasonals show soybean oil's percent of the crush value peaking right around the middle of April and losing share value right into the middle of July before some recovery, while the 10-year seasonal shows this to an even higher degree.

Looking at the individual seasons, in 1994/95 the share hit a top the end of 1994 at 50% and fell to as low as 41% by late September.

In the 1998/99 season the share was at a peak at the beginning of the marketing year October 1998 at 50.3% and then fell for the rest of the year down to 36% by September 1999.

In 2007/08 the share increased from an already high level of 42% in December 2007 before peaking at just over 50% by late May before falling to 39% by September.

The final year was 2011/12, the only year where the share did not hit 50% but was just under that at 49.1% in December 2011 before a big tumble in the share percent bottoming at just over 30% by August 2012.

Take away points are that based on the seasonal price activity and action of most years of a high soybean oil percent of the crush value is by mid-April, that share starts to fall essentially all the way into the fall.

This year however, prices are acting like those seen in the 2011/12 season.

Note that with the latest central Illinois soybean oil percent of crush value at 42.6% we are well below levels where other rallies had topped out by a significant margin, so both the rally in soybean oil prices and its greater share of the soybean crush value could continue for a while.

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