Move over Crude, There’s a new Oil in Town

Move over Crude oil, there’s another oily commodity market that’s doing it’s own swan dive of late. Who?  None other than good ‘ol Soybean Oil.

It has since rebounded a little from the 29 mark, but a -14% drop doesn’t quite live up to the -50% drop seen in Crude, but it’s certainly worth mentioning. And believe it or not, you might use Soybean Oil nearly as much as you use Crude Oil every day. We’re talking baked goods, salad dressings, and more which use vegetable oil, which usually has as its main ingredient – Soybean Oil (mind blown). Naturally, to get Soybean Oil, one must do something to the Soybean itself – do you ‘oil’ a Soybean the same way you ‘milk’ a cow?  No, you crush the Soybean – and end up with two parts, Soybean Meal and a byproduct – Soybean Oil.  Just think of another legume, peanuts, and what happens to a jar of natural peanut butter if it sits for a while…all that oil on the top… and you can imagine how a bunch of oil is locked up inside those beans.

And yes, of course, there are futures markets on Soybeans – and their products, Soybean Oil and Soybean Meal – and whole trading strategies built around trading the so called ‘Crush Spread’, buying the meal, selling the oil, and so forth. However, just because they all come from the Soybean – doesn’t mean all of the markets move together in lockstep. We looked back at the cash price of Soybeans, and Soybean Oil, and it turns out the correlation isn’t as high as you might expect, with some nasty moves into negatively correlated territory.

Soybean Oil(Disclaimer: Past performance is not necessarily indicative of future results)

The 10 year correlation comes out to be +0.25… which really isn’t that high for a market that’s completely dependent on the other futures market. How could that be…. Well, one of the reasons is you grow the Soybeans at a certain time, but they can be crushed at different times, and that the Oil can last longer than the bean itself – so there’s a bit of a mismatch in the deliverability of each.  The markets can also have different return drivers and other outside global policies that could affect the oil and not the crop itself. The most recent case, The EPA’s shift in import policy which could have caused the fall in soybean oil price via Reuters.

“U.S. regulators have given the go-ahead for Argentina’s biofuel makers to qualify for U.S. biofuel credits, potentially making it  more attractive for South American exporters to sell into the U.S. market and potentially pressuring local prices.

The green light will effectively make it easier for the South American grains powerhouse to sell its big biofuel output into the United States, potentially jump-starting the local sector which has suffered from a drop in demand from its No. 1 customer, the European Union, due to a long-running trade spat.”

Argentina’s Biofuels Chamber, The EPA, The National Biodiesel Board, and the European Union!? Who knew Soybean Oil policies could be so exciting. Now the article doesn’t link this policy change to a fall in prices, and this policy change happened last week, so it’s unlikely that this is what caused such a drop. However, this policy change from the EPA will create more supply because Argentina happens to be the world’s largest exporter of Soybean Oil, and now it can export to the U.S., and it will be accepted the same as Soybean oil produced in the states. Will this increase in supply fuel an implosion from soybean oil? We don’t know that answer… but we do know it can’t go to zero.

So have fun eating that stir fry, French fries, or whatever you’re having off that griddle. You might just be enjoying some Vegetable Soybean Oil.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.