Bean Oil Prices Set to Rise Amid Palm Oil Shortage

The Bean Oil market is expected to see some seasonal buying heading into the 4th quarter of December, according to Sean Lusk, Vice President of Commercial Hedging at Walsh Trading. This is based on the fact that diesel prices are unlikely to back off much even if the Strait is fully opened, and bean oil could follow diesel back up.

Lusk also notes that Russia has lost 51 percent of its refining capacity due to targeted attacks by Ukraine, which is a longer-term issue for the industry. However, he believes that bean oil prices will eventually increase due to the biodiesel mandate and potential palm oil shortage in Asia.

The Indonesian Palm Oil association predicts that Indonesia's palm oil production will decline 3.7% from its estimated level in 2026 to 56.6 MMT in 2027, while demand for palm oil from the biodiesel industry is expected to rise by 18.5%. This would lead to a decline of nearly 15% in Indonesian palm oil exports to 26.5 MMT in 2027, which would be the lowest since 2016.

Lusk recommends buying the December Bean Oil 75/80 call spread for 45 points or better, with a cost and risk of $270 per spread plus commissions and fees. For more aggressive traders, he suggests buying the May 27 Bean Oil 75 calls and selling the 80/75 May Bean Oil put spread to collect 100 points or $600 upon entry less trade costs and fees.