Soybean oil prices on the Chicago Board of Trade (CBOT) sharply declined on October 14, 2023. This price drop followed a sudden rebound in the previous session and was influenced by uncertainties regarding U.S. biofuel policies and seasonal soybean harvest pressure.
Pricing Details
The December soybean oil contract reached a daily high of 70.08 cents/lb on October 13, but quickly reversed, ultimately falling by 0.61 cents/lb, equivalent to 0.89%, to 68.02 cents/lb. On October 14, this contract opened at 68.16 cents/lb and subsequently dropped to 67.11 cents/lb, reflecting a decline of 1.34% from the previous settlement and 4.24% lower than the daily high on October 13.
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Impact of EPA Policies and Soybean Harvest
These price fluctuations coincided with an announcement from the U.S. Environmental Protection Agency (EPA) on October 13. The agency proposed that 100% of the additional renewable fuel volumes exempted through small refinery exemptions under the Renewable Fuel Standard be reallocated. The EPA suggested that approximately 770 million Renewable Identification Numbers (RINs) be reallocated, representing the difference between 1.76 billion RINs exempted for 2025 and about 990 million RINs projected.
The agency presented two approaches for allocating these requirements: distributing the additional requirements evenly between the compliance years 2026 and 2027 or allocating the entire volume to 2027. Although this proposed allocation maintains renewable fuel requirements and supports demand for feedstocks like soybean oil, uncertainty regarding the timing of implementation has raised concerns in the market.
Market participants had considered a full allocation, but were disappointed by the extended time for public comments and the lack of decision-making on the timing of implementation. The EPA is accepting public comments until December 4, and this issue remains unresolved between the compliance years.
Additionally, the progress of soybean harvesting in the U.S. has put further pressure on the overall oilseed market. The U.S. Department of Agriculture (USDA) announced on October 13 that as of October 11, 46% of the soybean crop in the U.S. had been harvested, a significant increase from 25% the previous week, although still below the five-year average of 50%.
The increased pace of harvesting, combined with commercial hedging pressure, has added a negative backdrop for soybean oil contracts. Recent volatility followed a 3.19% drop in the December soybean oil contract price on October 7, when this contract settled at 67.68 cents/lb, revealing a severe disparity between soybean oil and soybean meal contracts.
This renewed weakness highlights the sensitivity of soybean oil contracts to developments in U.S. biofuel policy, particularly the timing and implementation of additional renewable fuel requirements.
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