KANSAS CITY, MISSOURI, US – Soybean oil futures have been on a rollicking ride during this year’s soybean harvest. On Aug. 16, the nearby CME Group soybean oil futures contract tumbled to a four-year low after a bearish August Crop Production report from the US Department of Agriculture (USDA) forecast record-high soybean production and yield for the 2024 crop that was even larger than initially anticipated by many in the trade. As a result, soybean oil futures prices fell to multi-year lows, but they didn’t stay there long, even as harvest of the massive domestic crop advanced and stocks began to build.

Since Aug. 16, soybean oil futures have jumped nearly 13%, and cash soybean oil prices have ascended more than 3¢ a lb despite cash basis values declining to 1¢ a lb from 1¾¢ a lb during the same period. But if soybean oil prices aren’t feeling pressure from the record-large domestic harvest, and if basis values have declined, then why are soybean oil futures and cash prices rising?  

“Palm oil is leading everything up,” said Brian Harris, executive director and owner, Global Risk Management.

Since April, palm oil values have been steadily climbing and are currently sitting at two-year highs. This persistent rise in value for the world’s most consumed vegetable oil has provided a substantial price floor for other global edible oils, including soybean oil, which is the most consumed vegetable oil in the United States.

Earlier this year, analysts at an industry conference in Kuala Lumpur raised concerns about lower 2024 palm oil output in Indonesia and Malaysia, saying extended dryness from an El Niño weather pattern along with aging trees and poor husbandry related to cost-cutting measures and a diminished labor pool that never fully recovered from the COVID pandemic were contributing factors fueling their concerns. Indonesia and Malaysia are the world’s leading palm oil producers, supplying nearly 85% of global production. As a result, palm oil prices jumped nearly 20% in the first quarter of 2024. And while there was some price correction in ensuing months, especially as waning crude oil values contributed pressure and palm oil’s rising prices deterred export demand.

And yet, the outlook for lower production of palm oil sustained an undercurrent of strength, and as Indonesian and Malaysian crop production reports began to manifest, palm oil prices resumed their climb.     

In its October Oil Crops Outlook, the USDA reduced its forecast for global 2024-25 palm oil ending stocks to 16.1 million tonnes, down 1.5 million tonnes from the previous month’s outlook. The USDA reduced its forecast for Indonesian 2024-25 palm oil production to 46.5 million tonnes, down 500,000 tonnes, based on lower yield. The Department also cut its estimate of 2023-24 Indonesian palm oil production by 2.5 million tonnes, to 44 million tonnes, due to lower-than-expected harvested acreage and yield.

The Indonesian Palm Oil Association on Oct. 23 said Aug. 31 stocks in the world’s leading palm oil producer were 2.45 million tonnes, down from 2.513 million tonnes in July, and the country’s lowest monthly stockpile since March 2019. Overall production since January was down about 5%.

 “Generally, the palm oil production trend stays higher into late October or early November, and now people are concerned we peaked out a couple of months earlier since that is August data,” Harris said, referring to the report from the Indonesian Palm Oil Association.

Adding further fuel to the palm oil price fire is proposed policy by the Indonesian government to increase the nation’s mandatory biodiesel blend to 40% palm oil-based in 2025, up from the current requirement of 35%. This increase in domestic consumption likely will put further strain on an already squeezed supply situation.