Much has been made in the past six months about the skyrocketing price of corn. Corn growers have cheered as the golden grain rose from $2.40 a bushel to $4 a bushel. Livestock producers have cried foul, as the subsidized ethanol industry gobbled up over a quarter of U.S. production. Critics have fretted over food versus fuel.

Lawmakers have jumped on the ethanol bandwagon to avoid being blamed for $4 gasoline, caused by decades of inattention to the energy issue. Against this cacophonous background, soybean oil has been quietly staging its own revolution.

Soybean oil was once considered a waste product, produced from the crushing of soybeans for meal  In recent years, it was just another oil in the highly competitive vegetable oil market. Food processors would use cotton, palm or soy interchangeably depending on what was cheaper at the time. Food labels would list three or four oils and say one or more was used in the product. As consumers became more educated about their oils, soy began to achieve its own identity. Seen as a healthy oil, it still lived in the shadow of corn, canola, and olive oils, all of which seemed to outshine and outsell soy. Two factors have come together in the past two years to set soybean oil on a track that may make it the most in demand oil in the world.

When it was determined that trans-fats in foods cause health problems, the government decided manufacturers had to list the level of trans-fats on their food labels. Food processors saw this as the kiss of death and scrambled to find oils that did not produce trans-fats.

The soybean industry quickly developed a variety that did not produce trans-fats (thank you, biotechnology), producers started growing the low-linoleic beans, and the new oil began to flow. Demand quickly outpaced supply as the fast food industry started making the switch.

At the same time, efforts by soybean farmers to develop a diesel fuel made with soybean oil started to pay off. Soy biodiesel has made tremendous strides in its short life. When regular diesel fuel is blended with soy methyl ester, made from processing soybean oil, you get a diesel fuel with many environmental benefits. First adopted by farmers to promote their own industry, soy biodiesel is now being used by school corporations and, increasingly, by over-the-road trucks. Purdue University has produced a jet airplane fuel made from soybean oil and electric companies are starting to use soy biodiesel in their electric transformers. All of this pales, however, by comparison to what has been happening in the rest of the world.

In Europe diesel fuel is used more than gasoline and the Europeans are building soy biodiesel plants as fast as we are building ethanol plants. The demand for biodiesel is so great in Europe that they are considering allowing GMO beans to be used for fuel production. Asia is another hotbed of demand for biodiesel. With Malaysian palm oil plentiful, China is eagerly buying up boatloads of oil for processing into fuel.

The palm oil price has gone up 25 percent since the first of the year as demand continues to increase. My friend Jim Riley, with Riley Trading, sent over some charts on the soybean oil market. With the exception of a sharp dip in October of last year, the price of soybean oil has been rising sharply and steadily for almost the past two years. This strength has been one of the underlying reasons that soybean prices have been above $8 for the past few months.

With the world’s largest soy biodiesel plant scheduled to come online later this year in north central Indiana, demand for soybeans and for soybean acreage will be intense.

While many soybean growers know little nor care much about soybean oil, it is quickly becoming the driving force in the industry.
Corn growers may also want to keep an eye on soybean oil. As demand for soybean oil increases, more acres that had been planted to corn may move to soybeans. The next oil boom may be in the heart of the Corn Belt.