South American soybean oil gains competitiveness into Asia as energy rally reshapes vegetable oil spreads

Global vegetable oil markets have tightened significantly in recent weeks as rising crude oil prices and expanding biofuel demand widened South American soybean oil spreads against Asian crude palm oil, reshaping arbitrage relationships into Asia.

Chicago Board of Trade July soybean oil futures rallied above 76 cents/pound in early May, reaching the highest levels since November 2022, supported by strength in energy markets and expectations of stronger biodiesel demand globally. According to the latest available Commodity Futures Trading Commission's Commitments of Traders data, managed money funds held a net-long position in CBOT soybean oil futures of roughly 165,000 contracts in the week ended April 28, reflecting strong speculative participation in the rally.

At the same time, Southeast Asia's biodiesel sector continues expanding. Indonesia's upcoming B50 biodiesel mandate, scheduled to begin July 1, is expected to significantly increase domestic palm oil consumption and tighten export availability over time. Meanwhile, Malaysia is accelerating discussions around expanding biodiesel blending mandates beyond the current B10 program toward B15 and potentially higher blends, according to statements from the Malaysian Plantation and Commodities Ministry and industry groups.

Market participants said rising energy costs and supply disruptions linked to tensions in the Middle East have reinforced the attractiveness of biofuels across Asia, strengthening long-term support for the vegetable oil complex.

The result has been a notable widening in spreads between South American soybean oil and Asian palm oil markets. Market data from S&P Global Energy shows FOB soybean oil values in both Brazil and Argentina generally trading at premiums to Asian crude palm oil benchmarks during January and February, before spreads shifted sharply higher from late February onward as crude palm oil rallied alongside crude oil and broader biofuel markets.

Spread data shows the relationship moved from Asian crude palm oil discounts of as much as $50-$100/metric ton versus South American soybean oil earlier in the year to premiums exceeding $80-$100/mt by March and April, depending on destination and origin comparisons. FOB Indonesian and CFR West Coast India crude palm oil values both strengthened sharply relative to Brazil FOB Paranaguá soybean oil and Argentina FOB Up River soybean oil values, reflecting the growing influence of energy-linked pricing across the vegetable oil complex and expectations of tighter palm oil availability tied to expanding biodiesel mandates in Southeast Asia.

However, despite soybean oil becoming relatively more competitive on a flat-price basis in recent weeks, large-scale arbitrage expansion has remained limited because elevated freight costs continue constraining delivered economics into Asia.

Freight, correlated pricing constrain arbitrage

"The spread looks supportive on paper, but delivered economics are still not wide enough to trigger aggressive substitution," a Brazil-based soybean oil trader said.

Freight costs have become a major limiting factor. Market participants reported that freight rates on key export routes increased sharply in recent weeks, with some indications about $130/mt, significantly affecting delivered costs for South American soybean oil into Asia.

At the same time, soybean oil and palm oil prices continue maintaining a strong correlation because both markets remain heavily influenced by crude oil and biofuel demand. This correlation limits the extent to which soybean oil can sustainably outperform palm oil without eventually reducing competitiveness.

Biofuel demand reshapes global trade flows

Vegetable oil trade flows have also been reshaped by expanding biofuel demand in the Americas. Market participants said stronger renewable diesel and biodiesel demand in North America has increasingly rationed US soybean oil away from export markets, shifting more global import demand toward Southeast Asian palm oil and South American soybean oil origins.

At the same time, Brazil's rising soybean oil production continues increasing export availability. According to Brazil's National Agency of Petroleum, Natural Gas and Biofuels, soybean oil use for biodiesel production reached 573,000 mt in March, with soybean oil accounting for 72% of total biodiesel feedstock consumption, the highest share since August 2025. Preliminary data from Brazil's Foreign Trade Secretariat also showed vegetable fats and oils exports running roughly 61% above year-earlier levels during the first 16 working days of April, reinforcing the scale of available South American supply competing into Asia.

Basis weakens as supply outpaces demand growth

While CBOT soybean oil futures have strengthened, physical markets in South America remain under pressure from abundant supply.

Ongoing soybean harvest and elevated crushing activity in both Brazil and Argentina continue supporting rising soybean oil availability, intensifying exporter competition and pushing basis levels sharply lower.

Platts assessed the Argentine soybean oil FOB Up River June basis at minus 2,370 points to CBOT July futures May 5, while Brazil FOB Paranaguá June basis was assessed at minus 2,250 points.

The sharp decline in basis highlights the current imbalance in the market. Although global pricing signals were supportive, demand has been steady, forcing exporters to adjust primarily through weaker premiums rather than outright prices.

Some market participants said downside pressure on basis may have been partially limited by slower soybean arrivals into Argentina's crushing sector earlier in April. According to data from Argentina's Ministry of Agriculture and Ministry of Energy, soybean truck arrivals at ports and processors were roughly 20% below average due to harvest delays, rainfall and labor disruptions, potentially constraining near-term crushing activity and soybean oil supply growth. However, arrivals improved sharply later in the month, reducing some of that temporary support.

In the near term, international energy markets and biofuel policy are expected to remain the dominant drivers of global vegetable oil pricing. However, unless Asian demand accelerates enough to absorb increasing South American supply, FOB soybean oil markets in Brazil and Argentina are likely to remain capped by weak basis levels, while elevated international freight rates continue to constrain delivered arbitrage economics and limit large-scale trade flow expansion into Asia.