South American soybean oil prices remain stable

South American FOB soybean oil prices remained stable throughout June, despite one of the sharpest corrections in Chicago Board of Trade (CBOT) soybean oil futures in recent years. This was made possible by significant changes in FOB basis levels in Argentina and Brazil, offsetting futures market volatility.

While CBOT soybean oil futures experienced a sharp correction during the month, export prices for the physical commodity in South America continued to fluctuate within a relatively narrow range, highlighting the divergence between the financial and physical soybean oil markets.

South American FOB Soybean Oil Price Stability Amid Futures Volatility

Platts soybean oil prices (FOB Paranagua in Brazil and FOB Upriver in Argentina) remained within a relatively narrow range throughout June, despite significant volatility in the underlying futures market.

While both markets experienced normal daily fluctuations, neither reflected the extent of the correction occurring in CBOT soybean oil futures. Market participants attributed this resilience to stable international demand, competitive export prices, and unchanged physical market fundamentals.

A sharp strengthening of the FOB basis offset the decline in CBOT soybean oil futures.

The stability of FOB prices in South America was largely explained by the dynamics of the FOB basis, which became the main adjustment mechanism in June.

As CBOT soybean oil futures declined, the basis strengthened sharply in both Argentina and Brazil, offsetting a significant portion of the decline in futures prices and limiting the decline in final FOB prices.

In late May and early June, as soybean oil futures soared to multi-year highs, the basis weakened to historically low levels (the discount exceeded 2,000 points to the CBOT futures price). During the futures correction, the basis recovered strongly, strengthening by the end of the month to approximately 1,400-1,700 points below the CBOT quote.

According to market participants, this recovery reflected a decline in futures prices, not a reduction in soybean oil supply.

“The futures market demonstrated extreme volatility, while the physical market changed little,” noted a soybean oil trader in Brazil. “Soybean oil futures experienced an aggressive correction that began on June 4 and reached a short-term low on June 18, when July futures breached a large concentration of stop-loss orders around 70 cents per pound.” The fundamentals of renewable diesel and soybean oil feedstock demand in the US have not changed significantly, so I view this as a temporary correction.”

Decline in CBOT soybean oil futures is driven by speculative liquidation and improving supply outlooks.

The correction in CBOT soybean oil futures reflects a combination of technical selling and increasingly bearish supply fundamentals.

After rising to nearly 79 cents per pound in early June, next-month soybean oil futures fell below 67 cents per pound by the end of the month. The decline accelerated as speculative funds liquidated long positions, triggering additional stop-loss selling after breaking key technical support levels.

Negative sentiment was reinforced by favorable weather in the US, increased soybean acreage, higher-than-expected quarterly soybean inventories, and record soybean production forecasts in Brazil, which bolstered expectations of abundant global soybean and soybean oil supplies.

Recent CFTC trader position data confirmed the scale of speculative liquidation. Between June 2 and 23, managed funds reduced their net long soybean oil position from 156,433 contracts to 103,589 contracts, a decline of nearly 34%, primarily due to liquidation of long positions rather than aggressive new short selling. Meanwhile, market participants (producers/merchants/processors/consumers) expanded short hedging positions, and swap dealers reduced their spreading activity slightly, indicating orderly commercial hedging despite the sharp correction in futures.

Despite the decline in futures, market participants stated that demand for renewable diesel and physical export demand are generally supportive of soybean oil.

The differences in the dynamics of the futures and FOB markets highlight the different factors influencing pricing. While CBOT soybean oil futures remain heavily dependent on speculative positions and changing supply expectations, South American FOB markets continue to respond primarily to export demand, freight economics, and regional supply availability.

For physical traders, June showed that the basis successfully absorbed much of the volatility in CBOT soybean oil futures, allowing FOB soybean oil prices in Argentina and Brazil to remain relatively stable despite exceptional financial market turbulence.

Tags: soybean oil, Brazil, Argentina