U.S. grains: Soyoil jumps on new U.S. biofuel targets

(Scott Bauer photo courtesy ARS/USDA)

Chicago | Reuters — Chicago Board of Trade soyoil futures surged nearly seven per cent on Wednesday after the U.S. government released final requirements for biofuel use for next year, analysts said.

The strength in soyoil lifted soybeans, but CBOT wheat closed lower and corn was narrowly mixed, pressured by a stronger U.S. dollar and profit-taking ahead of Thursday’s U.S. Thanksgiving holiday.

Most-active CBOT January soyoil futures settled up 2.37 cents at 37.14 cents/lb. after rising the daily 2.5-cent limit to 37.27 cents, a contract high (all figures US$).

January soybeans finished 4-1/4 cents higher at $10.34-1/4 per bushel. December corn closed down 1/4 cent at $3.50-3/4 a bushel and December wheat fell 5-3/4 cents at $4.01-1/2.

Soyoil soared after the U.S. Environmental Protection Agency (EPA) set the target for total renewable fuel use for 2017 at 19.28 billion gallons, up from this year’s 18.11 billion gallons.

The total includes 15 billion gallons for conventional biofuel, mainly corn-based ethanol, and 4.28 billion gallons for the advanced biofuels mandate, which includes soy-based biodiesel.

“Soybean oil futures led today’s rally on EPA’s larger-than-expected increase in the total renewable fuel obligation for 2017, which will significantly raise the level of biodiesel used to fulfill the mandated quantity,” said Dan Cekander, president of DC Analysis.

The primary feedstock for U.S. biodiesel fuel is soyoil, so the EPA’s targets should tighten domestic soyoil stocks. The U.S. Department of Agriculture currently projects U.S. soyoil stocks at the end of the 2016-17 marketing year at 1.658 billion lbs.

“No matter how you cut the mustard, you are going to take some of this carry-out down, probably half a billion pounds,” said Charlie Sernatinger, analyst with ED+F Man Capital.

As CBOT soyoil futures climbed, soymeal futures fell on oil/meal spreading. Soybeans are processed into soymeal, used in animal feed, and soyoil, used in foods and biodiesel fuel. Brokers often trade on the spread, or price difference, between soymeal and soyoil.

Soybeans closed higher, following soyoil, but dipped lower at times on profit-taking after the January soybean contract notched a four-month high at $10.35-3/4 a bushel.

CBOT corn futures showed little reaction to the EPA’s biofuels targets and sagged on position-squaring ahead of the Thanksgiving holiday and strength in the dollar, which tends to make U.S. grains less attractive on the world market.

Also, forecasts called for generally favourable weather in South America, where corn and soybean crops are developing.

Traders will be watching the U.S. weekly export sales report on Friday for further direction.

— Julie Ingwersen is a Reuters correspondent covering grain markets from Chicago. Additional reporting for Reuters by Michael Hogan in Hamburg and Naveen Thukral in Singapore.

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