South American FOB soybean oil values remain resilient as basis absorbs CBOT futures volatility

South American soybean oil FOB prices remained stable throughout June despite one of the sharpest corrections in Chicago Board of Trade soybean oil futures in recent years, as FOB basis levels in Argentina and Brazil adjusted aggressively to absorb the volatility in the futures market.

While CBOT soybean oil futures experienced a sharp correction during the month, physical export prices in South America continued to trade within a comparatively narrow range, highlighting the divergence between financial and physical soybean oil markets.

South American FOB soybean oil prices stable despite futures volatility

Platts-assessed soybean oil FOB Paranaguá in Brazil and FOB Up River in Argentina traded within a relatively narrow range throughout June despite significant volatility in the underlying futures market.

Although both markets experienced normal day-to-day fluctuations, neither reflected the magnitude of the correction taking place in CBOT soybean oil futures. Market participants attributed the resilience to steady international demand, competitive export pricing and stable physical market fundamentals.

FOB basis strengthens sharply to offset declining CBOT soybean oil futures

The stability of South American FOB prices was largely explained by the behavior of FOB basis, which became the primary adjustment mechanism during June.

As CBOT soybean oil futures declined, basis strengthened sharply in both Argentina and Brazil, offsetting much of the weakness in futures and limiting declines in outright FOB prices.

Basis levels had weakened to historically large discounts during late May and early June as soybean oil futures rallied to multiyear highs, briefly exceeding discounts of 2,000 points below CBOT futures. As futures corrected, basis recovered aggressively, strengthening to approximately 1,400-1,700 points below CBOT by month-end.

Market participants said the recovery reflected lower futures prices rather than tighter soybean oil availability.

"The futures market has been extremely volatile, but the physical market has not moved nearly as much," a Brazil-based soybean oil trader said. "Soybean oil futures had an aggressive correction that started on June 4 and reached a near-term bottom on June 18, when July futures traded through a large concentration of stop-loss orders around 70 cents/lb. The underlying demand fundamentals for renewable diesel and soybean oil as a feedstock in the United States have not materially changed, so I view this as a temporary correction."

CBOT soybean oil futures driven lower by speculative liquidation and improving supply outlook

The correction in CBOT soybean oil futures reflected a combination of technical selling and increasingly bearish supply fundamentals.

After rallying to nearly 79 cents/lb in early June, front-month soybean oil futures fell below 67 cents/lb by month-end. The decline accelerated as speculative funds liquidated long positions, triggering additional stop-loss selling after key technical support levels were breached.

Bearish sentiment was reinforced by favorable US weather, larger soybean acreage, higher-than-expected quarterly soybean stocks and record soybean production forecasts in Brazil, all of which strengthened expectations for abundant global soybean and soybean oil supplies.

Recent CFTC Commitments of Traders data confirmed the scale of speculative liquidation. Between June 2 and June 23, Managed Money reduced its net long soybean oil position from 156,433 contracts to 103,589 contracts, a decline of nearly 34%, driven primarily by long liquidation rather than aggressive new short selling. Meanwhile, Producer/Merchant/Processor/User participants expanded short hedge positions while Swap Dealers modestly reduced spreading activity, indicating that commercial hedging remained orderly despite the sharp futures correction.

Despite the decline in futures, market participants said renewable diesel demand and physical export demand remain broadly supportive for soybean oil.

The contrasting performance of futures and FOB markets highlights the different forces driving price formation. While CBOT soybean oil futures remain heavily influenced by speculative positioning and evolving supply expectations, South American FOB markets continue to respond primarily to export demand, freight economics and regional supply availability.

For physical traders, June demonstrated that basis successfully absorbed much of the volatility in CBOT soybean oil futures, allowing FOB soybean oil values in Argentina and Brazil to remain comparatively stable despite exceptional turbulence in the financial market.