Bean oil's breakout is bullish for crop-based and petroleum-based fuel markets
July 8, 2024
Key Observations:
The breakout we expected in CBT soybean oil has arrived. When we discussed this opportunity with investors in São Paulo and Rio de Janeiro during our visit three weeks ago (Jun 17-19), the prompt CBT price was trading in a narrow range around 44 cents per pound, or about 38% below the one-year high (72.81 cents, 24-Jul-23).
Reversal came swiftly. Last week the closing price for BO1 surged from 43.77 cents (Jun 28) to 49.62 (Jul 5) for a +13.4% advance to a 3-month high.
We expect further price appreciation on (a) strong demand growth in U.S. biofuel and food channels, (b) the rising trade frictions in Asian vegetable oil markets, and (c) realized U.S. bean oil supply growth more modest than the lofty consensus expectation at +5.8%. A 1%-point slower growth rate (i.e., +4.8%) would still be extraordinary and yet would cut projected U.S. ending stocks by 270 million pounds (-14.8%) all else equal.
This asymmetrical risk and the now-observed inflection in bean oil’s price trend are bullish impulses into middle distillate prices on cost-push inflation through the biofuels and the direct competition between renewable diesel and petroleum-refined diesel. This fundamental support reinforces our conviction in higher gasoil, ethanol, and other oil product prices in 3Q2024.
July bean oil (BON4) expires on Friday Jul 12, which also happens to be the release date for the USDA’s next WASDE* report.
Source: CBT, USDA, Bloomberg, Blacklight Research. *WASDE = World Agricultural Supply and Demand Estimates. Note too that bean oil prices are holding value even as soybean prices struggle at multi-year lows. The active Nov-24 CBT soybean contract briefly traded below $11 per bushel on Jul 1, a fresh near three-year low.
Comments