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Thursday, April 16, 2026

The Soybean Pivot – Long Soyoil Short Soymeal

By Century Financial in 'Investment Insights'

The Soybean Pivot – Long Soyoil Short Soymeal
The Soybean Pivot – Long Soyoil Short Soymeal

In Simple Terms

The US government’s biofuels mandates are forcing a sharp rise in usage of biofuel, and domestic production cannot keep pace. The ongoing geopolitical crisis adds a near-term price boost.

Furthermore, according to the mandate, 78% of all US soy oil to be used for fuel production.

Demand for Soyoil is expected to be at 18.5 billion pounds, while the supply is expected to be at 16 billion pounds. Causing an undersupply of 2.5 billion pounds.

Long Soybean Oil

US soy oil faces a demand-supply gap in 2026-27. Government biofuels mandates are forcing a sharp rise in demand, a key competing import has been eliminated by policy, and domestic production cannot keep pace.

Biodiesel in the United States is a renewable, biodegradable fuel produced primarily from soybean oil, used cooking oil, and animal fats.

Compliance-Driven, Not Discretionary
The EPA's biofuel mandate for 2026-27 requires 78% of all US soy oil to be used for fuel production, up from 48% in 2024. This is legally compelled consumption — US refiners must comply or face penalties. The final rule was submitted for approval in late February and is expected in late March.

Even running every US crush plant at full capacity, domestic soy oil production in 2026 tops out at ~30.1 billion pounds. After food and feed use (~14 billion pounds), only ~16 billion pounds remain, roughly 2.5 billion pounds short of what renewable diesel requires. New plants coming online o—er marginal relief, not a fix.

Chinese UCO Effectively Banned
China supplied 5.4 billion pounds of used cooking oil (UCO) to US renewable diesel producers in 2024, up from just 285 million pounds in 2021. The 2026 amendment to the 45Z tax credit restricts biofuel incentives to North American-origin feedstocks, e—ectively eliminating Chinese UCO from the programme. That displaced volume has no scalable domestic substitute other than soy oil.

Near-Term Catalyst: Geopolitical Energy Premium
US-Israel strikes on Iran have pushed Brent crude to approximately $100/barrel, with the Strait of Hormuz remaining disrupted. Soy oil has tracked crude prices closely, gaining approximately 8% in March 2026 alone, revisiting levels last seen in 2023. Market participants are pricing soy oil as an energy proxy. The duration of this premium is contingent on the conflict trajectory.

Short Soybean Meal
Soybean crushing is the industrial process of extracting oil from soybeans, which leads to the production of two primary products: soybean oil and soybean meal.

The process separates the soybean into roughly 80% meal (used for animal feed) and 20% oil (used for food and biofuel). Meaning that if 30 billion pounds of soyoil is produced, then approximately 120 billion pounds of soymeal is produced. Looking at the demand, the US demand is expected to be at 42.4 million short tons, or about 85 billion pounds.

This shows a supply glut in the commodity.

Ratio Chart

Source: TradingView
Date: 25 March 2026

The ratio between soyoil and soymeal had resistance at the 0.20 mark on the monthly chart. In the weekly chart, it has broken this resistance and has even bounced after retesting the same.

Risks and Assumptions related to Back-tested trading strategies
The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
The back-tested strategy might be at risk of data dredging, which is the behavior of testing multiple hypotheses at one time, resulting in picking the data that best supports your main hypothesis.
Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
Unforeseen events can lead to variation in performance from the tested trading strategy.
The tested result has been computed with price feeds available from Bloomberg.
The testing environment has not considered transaction or any other costs.
Trading indicators used for the purpose of testing has been provided by Bloomberg.
The strategy might suffer from data mining fallacy, selection bias and backfill bias.
A trading strategy that performs well on multiple datasets from one market (e.g., forex) might not perform as well in another market (e.g., stocks).
The strategy may not depict accuracy in terms of spread changes due to the spread-widening events.

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