Looking to the Futures

Soybean oil futures (/ZL, currently set for July delivery) have been on a tear this year. The contract has rallied from below 50 to above 70 so far, reaching an intraday high of 73.47 this morning. That is the highest level since 2022. It’s up over 50% year to date.

There are multiple reasons for soybean oil’s performance this year. Higher energy prices, including for diesel (/HO) have given prices a lift, while palm oil is also up for the year. Those are both important factors since soybean oil is used in biodiesel, and soybean oil and palm oil can substitute for each other depending on prices. Grain and oilseed futures have also all gained ground this year. While in many cases, commodity strength accompanies dollar weakness, that is not a factor this year, with the dollar index ($DXY) essentially flat at +0.42%.

Crude oil and its refined products are all up on the year, due in large part to the war in Iran and the situation in the Strait of Hormuz. Crude oil (/CL) is up 74% while gasoline (/RB) has nearly doubled, up 99%. The most relevant energy product for soybean oil, heating oil (/HO) is up 88% on the year. Heating oil is closely related to soybean oil because of soybean oil’s use as a feedstock in biofuel blends.

The USDA’s Agricultural Outlook announced in February that domestic use in biodiesel is expected to increase by 17% to 17.3 billion pounds for the 2026/2027 marketing year. In addition to that forecast, on March 27 the EPA released the final Renewable Fuel Standards (RFS) volumes for 2026 and 2027. The RFS mandates specific amounts of biofuels and renewable fuels to be blended into the U.S. transportation fuel supply annually. When the initial proposal was released, it proposed a requirement of 7.12 billion ethanol-equivalent gallons of biomass-based diesel in 2026. That led to two straight trading days with soybean oil locked limit-up last summer. The final rule was for 8.86 billion gallons.

Palm oil is the biggest vegetable oil in the world in terms of production, at 80 million metric tons (mmt) per year, while soybean oil is a close second at 71 mmt. Rapeseed oil is third at 35 mmt. Both palm oil and rapeseed oil are up around 15% on the year.

While soybean oil is the top performer among the grains and oilseeds, the others are up solidly as well. In second place, Kansas City hard red winter wheat (/KE) is up 37%, with soft winter wheat (/ZW) up 30% and Minneapolis hard red spring wheat (/MWE) up 25%. The other components of the crush spread, soybeans (/ZS, +14% YTD) and soybean meal (/ZM, +10% YTD) are also up.

You may have noticed that soybean oil is up a lot more than the other soybean futures. That has led to an expansion in the crush spread, or the value of raw soybeans and the output of soybean meal and soybean oil. The crusher margin, which can be charted on thinkorswim using the formula (11*/ZL+2.2*/ZM-/ZS) has more than doubled to 335 cents per bushel this year.

While soybean oil has gained this year, traders will be concerned about related market conditions. If renewable diesel demand and crude oil prices remain strong, soybean oil could see continued strength. If energy prices retreat or policy support erodes, soybean oil could retreat.

The six-month daily chart shows the strong rally to start the year. That lasted until mid-March, when the RSI moved out of overbought territory. Despite that retreat, the RSI has not touched 50 since the middle of January. The MACD is still in a supportive setup. The contract is trading above its moving averages, and the 50-day SMA has been lower than the 9- and 20-day SMAs since mid-January.

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