Bean Oil Market Snapshot
Soybean Oil looks to be lined up for downward pressure. Prices have been relatively range bound YTD. Both U.S. and World Stocks to Use numbers are at or above the 5 year average despite the expected bump in domestic Biodiesel demand. Forward Board Crush averages well above $1/bushel insuring the vegoil processing will target maximum capacity. Most notably is Non-Commercial participants are holding their relatively large short positions despite the modest rally at the end of the 2nd quarter.
For Bean Oil consumers looking to hedge this landscape doesn’t provide very many sexy options. Implied volatility is holding a tight range with a modest premium over the realized. The vol smile is also not providing very much juice to make any structured product overly attractive. Based on 4 month forward pricing with a one month averaging period the 2-3 hundred points you may pick up do not really outweigh the downside potential if soybean production and crushing projections hold through the summer. Hand to mouth pricing, particular over an average, could makes sense in current market scenario.
In a similar scenario from 2018 when Non-Commerical shorts were also very short, U.S. Stocks to Use was well above the 5 year average and realized volality was below 20% any sort of pricing would have underpreformed the pricing the average.
However, given we are entering the growing season, demand remains steady, and any production scare may cause a run of short covering putting a price cap on as insurance verus fixing may pay for itself if current prices are already under a budget target.
