Technically Speaking

Over the past four years, soybean oil experienced a dramatic bull market that took prices to a new record high -- over 80 cents a pound in April 2022. Roughly two years later, those peak prices were cut nearly in half as the bullish excitement of becoming part of a new market for low-carbon fuel gave way to regulatory disappointments and the reality of competing feedstocks. This year, as recently as late June, August soybean oil prices were trading near their lowest level in over three years and it seemed as if the market had lost its appreciation for soybean oil's new role as a low-carbon fuel, as well as its traditional use as a source of food.

While those of us in the U.S. were focused on the disappointment of the Environmental Protection Agency's (EPA) lower-than-hoped-for Renewable Fuel Standard (RFS) mandate in the summer of 2023 and the federal government's restrictive guidelines for using soybean oil as a feedstock for the production of Sustainable Aviation Fuel (SAF), it is important to realize the U.S. is not the only market in search of a low-carbon fuel.

In a 2023 report on renewable fuels, the International Energy Agency pointed out that while the U.S., European Union, Canada and Japan are promoting increased use of biofuels, most new biofuel demand is coming from emerging economies like Brazil, Indonesia and India (see https://www.iea.org/… ). The relatively new practice of turning plant oils into biofuels is a global event, which means soybean oil prices benefit directly from their increased use in the production of renewable diesel in the U.S. and are also in position to benefit from the increased use of all plant oils for making biofuel.

The U.S. Energy Department (DOE) recently reported 1.070 billion pounds of soybean oil were used to make biofuels in April, up 15% from a year ago. Earlier this year, spot prices of both palm oil and rapeseed made new one-month highs in March, finding support from a combination of active demand plus production stumbles in Malaysia and Europe.

Technically speaking, a classic sign of long-term support appeared in September palm oil in early 2023. Prices fell below their 2022 low of 3,382 ringgits by a small margin but couldn't trade much lower. In June 2023, prices reversed higher and a year later are getting close to challenging long-term resistance at 4,276 ringgits, the high of the past 21 months.

Here in early July, August soybean oil is making a similar move. In April of this year, prices fell below the 2023 low of 44.68 cents a pound but didn't get very far before turning higher the past seven sessions. As of Friday, July 5, 2024, August soybean oil has clearly broken above its one-month high and is close to challenging the 2024 high of 50.28 cents a pound.

In both situations, the increased practice of making plant oils into fuel is giving both prices fundamental bullish potential. From a technical view, either a monthly close in August soybean oil above 50 cents a pound or a monthly close in September palm oil above 4,276 ringgits per metric ton would be bullish hints of higher prices ahead -- encouraging outlooks for the entire plant oil sector in 2024 as new markets take shape.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of commodities, futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

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