War-induced increases in energy prices could increase discounts on soybean oil relative to palm oil

Soybean oil in South America is currently trading cheaper than palm oil in Asia, surprising traders. However, if the war drags on, the spread between the prices will continue to widen.

According to Platts, as of March 11, Argentine soybean oil for April delivery was trading at $1,132.3/t FOB Up River and Brazilian soybean oil was trading at $1,138.91/t FOB Paranaguá. Meanwhile, crude palm oil for April delivery was trading at $1,182.5/t FOB Indonesia and $1,212.5/t CFR West Coast India.

After palm oil prices rose in line with energy prices, it became more expensive than soybeans.

The sharp rise in oil prices has supported vegetable oil markets due to the increased profitability of biodiesel production, which has increased demand for the main raw material for it – palm oil.

In addition, Indonesia (the world’s largest palm oil producer) is accelerating the transition to B50, which supports quotes.

The transition from B40 to B50 will increase palm oil consumption in Indonesia by 4-5 million tons per year, which will support global prices for it.

Soybean oil prices in South America are under seasonal pressure from soybean harvests, increasing processing volumes, and export offers.

Traders believe that the low price ratio between soybean and palm oils will persist, or even worsen, if oil prices continue to rise, especially since the situation has already attracted the interest of importers looking for a cheaper alternative to palm oil, which is rising in price following oil.