Soybean Oil Basis in the Midwest

July 11th, 2011


Category: Commentary, Oilseeds

Soybean oil basis levels dramatically appreciated since the late spring in the United States, with three major factors affecting oil basis levels. Missouri River flooding caused logistical problems for three big area plants—Bunge in Council Bluff, MO, AGP Co-Op in Omaha, NE and the St. Joseph, MO plants. Without the ability to import soybeans or ship soybean oil or meal by railroad, these plants are spending a lot more to transport by truck, which is dramatically more expensive. In essence, oil basis increased while demand waned. Consequently, oil basis increases for refined, crude and packaged basis levels caused a ripple effect in soybean prices across the United States.

Additionally, main crushers pushed oil basis levels to record highs not seen since 2008, partly due to the flooding of the Missouri River basin and bio-diesel conflicts due to the tax credit renewal last January. As the demand for bio-diesel and oil increases, basis levels rise accordingly. With bio-diesel demand increasing, while not as dramatic as some predicted, basis levels still will follow suit and remain high.

Lastly, fact crush margins remain extremely poor. In a ripple effect, bean prices increased significantly, while oil levels and meal demand stayed poor, leading to low meal prices. This leaves oil as the only available means for a crushing margin to acquire revenue to in turn improve the soybean market.
Analysts predict basis levels to stay high throughout the remainder of the third quarter, with discounts for fourth quarter basis levels. However, they are projected to stay relatively high and comparable to past fourth quarter historical expectations.

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