In the US and globally, demand for biodiesel and sugar-based ethanol continues to grow, inadvertently giving these food commodities an additional layer of demand. Soybean oil is a major feedstock for renewable diesel, especially in the US, and as a result, the CBOT-traded soybean oil benchmark contract is up 24% this year amid a relatively tight global market for vegetable oils, which includes sunflower oil (Ukraine), palm oil (Malaysia and Indonesia), and rapeseed oil (Canada, the EU, and China). With strong demand for soybean oil, processors have been incentivised to crush more soybeans, which inadvertently has led to an oversupply of soymeal, driving down prices amid lower demand for animal feed and sluggish demand from China.
Meanwhile, earlier this week the US Department of Agriculture reported that domestic supplies of soybeans for the 2025–26 marketing year will be even tighter than analysts expected. That could mean fewer supplies of beans to crush into oil, further underpinning prices at a time when Republican lawmakers are working on extending a clean fuel production tax credit by four years from 2027.
Sugar is another commodity which in recent years have shown increased correlation with direction of traditional fossil fuels, especially gasoline. This week, as the mentioned crude oil rally unfolded, the raw sugar futures contract surged 3.3% in New York, the most in a month, on speculation higher fuel costs would prompt millers in top exporters India and Brazil to produce more bioethanol instead of the sweetener. While the US is the world’s top producer of ethanol, but based mainly on corn, Brazil is the biggest producer from sugarcane with legislation mandating a minimum ethanol content in gasoline of 27%, with the potential for it to rise to 35%.