Soybean, used cooking oil markets brace for more uncertainty as Trump tariffs loom

UNCERTAINTY reigns across global soybean markets, as traders keep a close eye on how potential trade policies from US President-elect Donald Trump’s administration could impact commodity prices.

Trump has threatened higher levies on Chinese imports, which could escalate into a bruising trade war. And soybean prices could suffer, should Beijing – the world’s largest consumer and importer of soybeans – impose retaliatory tariffs.

On the other hand, analysts said a potential rise in tariffs on used cooking oil (UCO), which has been undercutting soybean oil in biofuel production, could provide some support for soybean prices.

However, Trump’s promises to unleash a new era for fossil fuels could trigger a reverse from biofuels.

The way Allianz Trade’s research team sees it, agri-commodities could be a prime target should Europe or China retaliate against US protectionism policies.

The team noted that agri-food is the top US exporting sector to China – at 1.2 per cent of the US’ total exports in 2023 – followed by oil and gas.

Given the ongoing energy crisis in Europe and still high crude oil prices, it is unlikely that either Europe or China would target US oil and gas exports, the team said.

“In the past, China has levied tariffs on US soybeans and other agricultural products; and could do so again,” it added.

Similarly, Oxford Economics said US soybean exports to China, as a share of its total soybean exports, is well above 50 per cent – and has not materially changed since 2017.

The economic advisory company noted in a recent research brief that the tariffs imposed by China in July 2018 since Trump’s first White House term are still in place.

“We assume in our Trump scenario that China would likely retaliate by raising existing tariffs further,” it said. “Indeed, high levels of Chinese soybean stockpiles suggest China may be preparing for a trade war.”

Oxford Economics expects international soybean prices to take a direct hit from the upcoming Trump presidency and ensuing trade war with China.

Price drivers

Following Trump’s win at the US presidential election, soybean prices dropped sharply on trade war worries – falling US$6.43 per tonne in its contract for January 2025. It has since rebounded slightly, on the back of gains in the vegetable oil markets on stronger demand.

While export exposure to China is an important factor leading to potential trade war risk, supply and demand fundamentals still underline commodities such as soybean. A drop in production will likely support the prices.

The US Department of Agriculture (USDA) slashed projections for soybean production down 3 per cent on Nov 8. This can potentially offer some relief to farmers who have struggled with surplus crops and support the lacklustre market.

Chicago-listed soybean futures was trading at US$979.25 per bushel as at 11.33 am on Friday (Nov 22), more than 23 per cent down year to date.

While the government kept the projected US season-average farm price for soybeans at US$10.80 per bushel, rising soybean prices in Brazil could make US soybeans a more competitive choice.

Soybean oil could also gain traction amid potential tariffs on UCO as a feedstock option for biofuels, lending support to the soybean prices.

Rabobank noted in a report released on Nov 21 that it expects continued growth in US domestic soybean demand, driven by renewable fuels, that helps to mitigate some risks.

From fossil fuels to biofuels – and back?

Trump has campaigned to promote and enhance production of fossil fuels, which would lead to lower oil and gas prices, and potentially a U-turn from the biofuel boom. This could cut demand for soybean oil feedstock in biofuel production.

US soybean oil supply used for biofuels has been steadily increasing, reaching 48.6 per cent in 2024, from 39 per cent in 2021, indicated USDA data updated on Oct 21.

However, tariffs on UCO – a strong competitor to soybean oil in biofuel production – could support soybean prices.

UCO demand in the US surged since governmental incentives to decarbonise transportation in 2022. It flipped the country from a net exporter of UCO until 2021 to a net importer since 2022, with UCO imports surpassing 1.36 million tonnes in 2023, indicated official data.

Based on data by Global Trade Tracker, the US has been the biggest buyer of Chinese UCO exports since 2023, followed by Singapore – the world’s top marine fuel hub.

Eddison Lee, principal of energy and natural resources of Oliver Wyman, noted a trend of Asian UCO imports into the US as feedstock of biofuels, displacing soybean oil, due to its low carbon intensity.

Total UCO exports from Indonesia, Malaysia, Vietnam to US have risen from just above 500 tonnes in 2020 to more than 50,000 tonnes in 2023. The volume for 2024 to date is already more than double that of 2023.

Rabobank senior analyst Oscar Tjakra shared the same notion. “I would say UCO has taken some market share from soybean oil as feedstock for biofuels industries in the US,” he said, noting that UCO used in US biofuels have almost doubled in two years as at April.

“The trend of increasing use of UCO for biofuels in the US market affected the soybeans market through UCO’s relationship with soyoil. Without availability of imported UCO, domestic soybean oil use in the US could have been higher and this could have provided support to US CBOT soyoil prices.”

“UCO will continue to undercut demand for soyoil for the biofuels industry in the US unless there are regulation changes,” said Tjakra, highlighting the possibility of UCO import limit or tax by the US government.

In May, a group that represents the biggest US soybean processors, including Cargill and Bunge Global, was reported to have been pushing for higher levies on Chinese UCO that it said is undercutting American crops used for biofuels. This speculation on UCO tariffs had boosted Chicago-traded soybean oil futures then.