What’s Driving Soybean Value: Meal or Oil?

Soybean value is derived from two products: oil and meal. In general, a 60-pound bushel of soybeans produces 48 pounds of soybean meal and 11 pounds of soybean oil with 1 pound of processing waste. To estimate crush margin, the following calculations can be used: 

Soybean meal value ($/bu) = Soybean meal price ($/ton)/2,000 x 48 lb/bu[1]

Soybean oil value ($/bu) = Soybean oil price (cents/lb)/100 x 11 lb/bu

Crush margin ($/bu) = (Soybean meal value + Soybean oil value) – Soybean price ($/bu)

The crush margin is an estimate of gross margin for a soybean processor and can be used as an indicator of profitability. Figure 1 depicts the monthly nearby soybean futures price and the monthly crush margin. Since January 2006, the average futures market crush margin has been $1.46/bu with a minimum of $0.90 and a maximum of $3.18. As of October 13, 2021, the crush margin was $2.08 indicating an above average gross margin or an incentive to crush (this may be partially diminished due to increased costs to operate soybean crush facilities due to COVID-19 and labor/logistical issues). 

But what is driving this incentive? Looking at the data shows that the percent of value derived from meal and oil changed in April 2021. For the first three months of 2021, soybean meal was 65% of the soybean value, the same as the January 2006 to October 2021 average. However, since April this ratio has moved in favor of oil with the October 2021 estimate of 54% of soybean value attributed to meal and 46% to oil (Figure 2). There are two primary reasons for increased soybean oil value. First, increased vegetable oil demand and lower stocks are causing the number of global days-on-hand (stocks divided by daily average consumption) to drop from 41.7 days in the 2020/21 marketing year to 38.5 days projected for the 2021/22 marketing year. The second factor is current and potential demand for biodiesel derived from soybean oil. Energy prices have risen dramatically this year, and the federal government has emphasized continued development of biodiesel as a renewable fuel.

So, what does this tell us about prices? Soybean meal futures prices have declined since the start of the year, dropping from $417.60/ton in January 2021 to $312.90/ton in October 2021. Conversely, soybean oil futures have increased from 44.62 cents/lb to 58.62 cents/lb. Over the same time, soybean futures have dropped from $13.70/bu to $11.88/bu. While strong demand for soybean oil has helped support soybean prices, it is likely that soybean meal will drive prices and gross returns to farmers moving forward.  As such, even if soybean oil prices continue to strengthen, the soybean meal market will likely need to establish a floor (or increase in value) for soybean prices to resume a strong upward trend.

Figure 1. Monthly Nearby Soybean Futures Contract Price and Crush margin, January 2006 to October 2021 (Calculated based on futures data from: barchart.com)

Figure 2. Meal and Oil Value per bushel of Soybeans, January 2006 to October 2021 (Calculated based on futures data from: barchart.com)

[1] There are two common approaches to estimating the quantity of soybean meal: (1) the one depicted above, 48 lbs of soybean meal at (44% protein) or (2) 44 lbs of soybean meal (48% protein), which is used by CME group.

Smith, Aaron. “What’s Driving Soybean Value: Meal or Oil?Southern Ag Today 1(44.1). October 25, 2021. Permalink