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ncreased Biofuel Use Means U.S. Must Keep a High Price on Soybean Oil to Discourage Exports
The dynamic between soybean oil and palm oil prices has become a key factor for the global vegetable oil market. As the United States uses more soybean oil to make biofuel, it has to find ways to keep the oil at home. The solution has been a high price for soybean oil compared to palm oil.
This price difference, or premium, recently reached over $600 per metric ton. This high cost has successfully discouraged other countries from buying U.S. soybean oil. In the upcoming 2026-27 marketing year, the amount of soybean oil used for biofuel is expected to rise significantly to 17.80 billion pounds. This is a big jump from 14.55 billion pounds in 2025-26 and only 11.758 billion pounds in 2024-25. With so much oil being used for fuel, there is very little left to export. The market's job is to make sure exports don't increase, and the current high price is doing that.
However, a potential problem is on the horizon. The weather phenomenon known as El Niño is expected to return and could be very strong. Historically, El Niño has caused significant damage to palm oil production in Malaysia, a major producer. A recent report from Reuters quoted Malaysia's economic minister as saying that crop yields could drop by 8-10% this year because of El Niño. In the past, during a severe El Niño in 2015 and 2016, palm oil output fell by as much as 18%.
If El Niño is as strong as predicted, palm oil production will likely decrease, causing its price to jump. This is where the risk for the soybean oil market lies. If palm oil prices rise and soybean oil prices do not, the price difference between them will shrink. This could make U.S. soybean oil more attractive to foreign buyers again. If that happens, the U.S. could start exporting too much soybean oil, leading to a shortage at home since there is not enough supply to meet both fuel demand and export needs.
The vegetable oil market is keeping a close watch on El Niño and how it will affect prices. It's a critical situation that could impact everything from fuel prices to the cost of food.
Source: DTN Progressive Farmer
