Volatile biofuels demand Is reshaping the price relationship between soybean and palm oils

The global vegetable oil market is undergoing structural changes, as the traditionally tight price link between soybean oil and palm oil has weakened noticeably since 2020. According to Farmdoc analysts, increasingly volatile biofuels demand has caused prices for the two oils to diverge more frequently and for longer periods, signaling a shift in how supply and demand shocks affect the market.

Soybean oil and palm oil together account for more than 60% of global edible oil supply and have long been considered close substitutes. Historically, their prices moved in tandem, maintaining a relatively stable spread. Since 2020, however, this pattern has broken down, suggesting that underlying market dynamics have fundamentally changed.

One of the key drivers behind the divergence is the difference in production geography and policy frameworks. Palm oil production is heavily concentrated in Indonesia and Malaysia, where a growing share of output is absorbed by domestic food and biodiesel demand. Soybean oil production is more geographically dispersed, centered in the United States, Brazil, and Argentina, and is increasingly influenced by national biofuels policies that support domestic feedstock use.

Analysts point to several distinct episodes of price divergence. In 2021, soybean oil prices surged well above palm oil prices amid rapid expansion of renewable diesel capacity in the United States. In 2022, palm oil prices fell sharply after Indonesia lifted its export ban, while soybean oil prices declined more gradually. Subsequent swings were driven by U.S. weather risks to soybean crops and adjustments in biofuel mandates and compliance credits.

As a result, vegetable oil markets are now more sensitive to regional and policy-specific shocks rather than purely global supply-and-demand factors. Biofuel mandates, export restrictions, weather disruptions, and domestic market balances can now move soybean and palm oil prices in different directions despite their substitutability.

Analysts conclude that there is no longer a single global price signal for vegetable oils. Market participants — including farmers, processors, traders, and policymakers — must monitor both global developments and localized drivers, from U.S. biofuel policy to export rules in Southeast Asia and crop conditions in major producing regions. Managing price risk in this new environment requires a broader and more nuanced approach than in the past.

Tags: soybean oil, prices, palm oil, biofuel