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Top Factors that Move the Price of Soybean Oil

Soybean oil is one of the two products of crushing soybean, with the other product being soybean meal. Soybean oil is classified as vegetable oil due to the fact that it is mostly used as cooking oil. Its application can also be found in other industries like the painting industry where it is used as a drying oil.

The importance of soybean oil in the food industry has led to the creation of a future s market for it. Therefore, investors who are looking to profit from the price of the commodity can do so by investing in its futures. In here, we will discuss the top factors that move the price of soybean oil.

U.S. soybean production
The reason why US production data is important to the soybean oil market is that US is the second-largest producer of soybean in the world. As a matter of fact, it is poised to become the biggest producer of soybean very soon, according analysts. The growing production of in the US has been bringing fears that the market would soon be glutted.

In general, when US production of soybean increases, you can expect that soybean oil prices will drop, due to fears over a glutted market as stated above. For instance, the US is tipped to have record soybean production in the year through September 2015. This has brought about a dip of the soybean oil market as the chart below shows.

Source: NASDAQ

In the same vein, if, in future, analysts being to predict a dip in US soybean production, it is likely that soybean oil prices will rise, in response to the inbuilt fear that supplies might not be sufficient to satisfy demands.

Alternative cooking oils
The availability of other cooking oils also does affect the price of soybean oil. Fundamentally, the more the other cooking oils become available, the greater the reduction in the reliance on soybean oil as cooking oil. Theoretically, the wide varieties of cooking oils available on the market put pressure on soybean oil prices.

 In other words, if, for some reasons, the production of other major cooking oils, like coconut oil, corn oil and palm oil, dips, there are huge chances that the soybean oil might benefit from the situation by seeing a bit more demand. When looking at the effect of alternative oils on the price of soybean oil, you want to give coconut oil, palm oil preference. 

US export data
Export data is usually an indication of inventories. High inventories, in most cases, translate to dwindling inventories. Therefore, when there is a growth in the export of soybean, chances are that inventories have decreased. This raises fears that the available soybean might not be sufficient to produce enough soybean oil to satisfy the demand in the US. This, therefore, causes prices to go up. On the other hand, if exports are down, prices may decline in response to prospects of a glutted market.    

Fundamentally, anything that affects the production of soybean will affect the price of soybean oil. Climate is one of such factors. Soybean cultivation requires hot summer, with temperature ranging between 20 and 30 °C.

According to agriculturists, temperatures below 20 °C or above 40 °C bring about stunted growth. Brazil, the world’s largest producer of soybean, has been dealing with unusually high temperatures during its recent drought seasons. This has been affecting the country’s production of soybean, which can be seen in the fact that US is fast catching up with it production. Considering that global warming is around, this could drive prices high from the near term to the long-term.

Demand in china
China is the highest consumer of soybean in the world. And with China’s economy growing year after year, China could become the wildcard of the soybean market. In general, as the demand for soybean in China grows, chances are soybean oil prices will follow suit. On the flip side, a dip in demand outlook from China could also send soybean oil prices down, with fear arising that there might be a glutted market. So it is important for investors to keep tabs on trends in the Chinese soybean market.

Fuel prices
Fuel is one of the factors of soybean oil production. Therefore, fuel prices are likely to affect the price of the commodity. In simple terms, rising fuel prices will increase the cost of soybean oil production. This, in the end, forces soybean oil prices to go up. However, this is not a yardstick to judge that falling fuel prices would automatically lead to a decline in soybean oil prices. In the real world, falling fuel prices would have only little effect on soybean oil prices.

Demand in industries other than food industry
Soybean oil is used in a number of food processing industries. As usual, the more these industries grow, the higher the chances that they will demand for more soybean oil, which might bring about an increase in soybean oil prices.

US demand
On a last note, you might also want to take the cost of chemicals used in the production of soybean oil into consideration. In particular, you should look out for trend in the hexane industry. You also want to lookout for news about soybean diseases, as if there is an outbreak, it could lead to sharp increase in soybean oil prices. For instance, corn earworm moth is a big threat to soybean cultivation in Virginia.

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