CBOT soybean oil futures volatility surged in June

Chicago Board of Trade soybean oil futures were more volatile in June than any month so far in 2021, contributing to a sharp decline in trading activity in South American FOB basis markets.

The current front-month CBOT contract posted a 15.51 cents/lb range between its highest and lowest settlement in June, surpassing its previous high for the year, of 12.81 cents/lb, in April.

In other months, the front-month contract had less volatility, with a 6.16 cents/lb range between its highest and lowest settlement in March, 6.11 cents/lb in February, 5.91 cents/lb in May and 2.56 cents/lb in January.

Forecasts of improving crude oil demand amid easing of restrictions related to the coronavirus pandemic contributed to boosted soybean oil futures in early June, as the commodity is a key raw material for biodiesel blended into diesel.

On June 7, CBOT’s front-month contract reached an historical high of 73.74 cents/lb. But right after that, reports showing the US government would be considering cuts in local biofuels’ blending requirements put futures on a downside spiral, plunging more than 8% June 17, with the front-month contract settling at 56.57 cents/lb that day — its lowest settlement in June.

In South America, such volatility has moved traders to cautionary positions, with scarce trades confirmed recently, as international demand also stalled.

South American is a key player in the global soybean oil market, with Argentina leading exports and Brazil poised as an important producer. Argentina is on track to produce 8.40 million mt and ship overseas 6.40 million mt of the commodity in the 2021-22 marketing year, while Brazil is expected to produce 9.18 million mt and export 1.30 million mt, according to the latest US Department of Agriculture estimates.

In mid-June, CBOT’s futures recovered to around 60 cents/lb, again tracking firmer crude oil prices, while sources also noted some demand from China. Amid low soybean crush margins, Chinese buyers were willing to purchase soybean oil ready for consumption instead of producing it locally, participants have said.

Some trades for nearby loadings were even heard June 23 in South America, possibly shadowing such a resurgence in demand, according to brokers. But Argentina, Brazil FOB basis markets were affected again as volatility came back.

On June 25, CBOT soybean oil futures settled more than 5% lower after the US Supreme Court ruled in favor of small oil refineries seeking for biofuel waivers. The decision was initially seen as a setback for biofuels’ producers, such as corn-based ethanol and biodiesel, but participants then evaluated exemptions to US blending requirements are expected to be limited.

To close a month marked by volatility, USDA on June 30 pegged this year’s US soybean acreage at 87.6 million acres, below the market forecast of nearly 89 million acres, while stocks were seen at 767 million bushels, from 787 million bushels expected by traders and analysts. That contributed to send all the complex prices sharply up.

Despite the very high volatility in June, the front-month contract traded at 65.16 cents/lb by the end of the month, largely unchanged from the 65.79 cents/lb settlement at the end of May.

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