Palm Oil Slides as Soy Gains Momentum in Chicago: A Tale of Two Oils

The Chicago commodities market has become a battleground for two of the world’s most traded edible oils: soybean oil and palm oil. Over the past quarter, palm oil futures have faced significant headwinds, while soybean oil has surged, driven by divergent supply-demand dynamics, policy shifts, and macroeconomic forces. This article explores the factors behind this inverse correlation and what it means for investors.

Ask Aime: Investor's Guide to Soybean Oil vs Palm Oil Market Shifts

The Palm Oil Downturn: Oversupply and Policy Headwinds

Palm oil prices have fallen sharply in recent months, with the May 2025 futures contract trading at RM4,170 per metric ton—down 1.5% from early March levels. The decline reflects a perfect storm of structural challenges:

Ask Aime: Why are palm oil prices declining?

1. Global Oversupply: Indonesian production hit a record 47.7 million tons in 2024, pushing inventories to a six-month high of 1.56 million tons. Malaysian output rose 16.8% month-on-month in March, exacerbating the surplus.
2. Currency Pressures: The Malaysian ringgit’s 0.83% appreciation against the dollar has made palm oil pricier for international buyers.
3. Policy Uncertainty: Indonesia’s delayed implementation of the B20 biodiesel mandate—which would boost palm oil demand by 3.8 million tons annually—has kept margins under pressure. Meanwhile, the EU’s Deforestation Regulation threatens to deter imports by imposing costly compliance requirements.
4. Trade Tensions: U.S. tariffs on Chinese goods and retaliatory measures have disrupted global trade flows, reducing palm oil’s competitiveness in key Asian markets.

Technical indicators paint a bleak picture: palm oil futures are testing support levels near RM3,911 per ton, with resistance at RM4,290. Analysts warn of further downside unless production cuts or demand spikes emerge.

Soybean Oil’s Surge: Cost Advantages and Policy Tailwinds

While palm oil falters, soybean oil has rallied, driven by U.S. export booms, biodiesel mandates, and a weaker dollar. The May 2025 CBOT soyoil contract has climbed to $0.435 per pound, a 17% discount to 2023 prices. Key drivers include:

1. Export Boom: U.S. soybean oil exports surged 976% year-on-year in early 2024, fueled by cost advantages over palm oil (a $75–$100/ton premium for palm). India alone reduced palm imports by 14% in March, shifting to cheaper soy.
2. Biodiesel Mandates: The U.S. Renewable Fuel Standard (RFS) requires 5.25 billion gallons of biodiesel by 2026, driving demand for soy-based feedstock.
3. Crude Oil Linkage: OPEC+ production cuts have boosted crude prices to $78 per barrel, improving the economics of soy-based biodiesel.

Technical analysis shows soybean oil holding $0.43/pound support, with resistance at $0.45/pound—a level it last breached in early 2023.

The Inverse Correlation: Why Palm Loses When Soy Wins

The inverse relationship between palm and soy prices is structural. Soy’s cost competitiveness and policy-driven demand growth have eroded palm’s market share. For instance:
- India’s Refiners: Switched to soy after palm prices hit $945/ton—a 20% premium to soy on a per-unit basis.
- EU Sustainability Shifts: The bloc’s 19% drop in palm imports in 2024 highlights the preference for soy, which avoids compliance costs under the Deforestation Regulation.

Looking Ahead: Can Palm Oil Rebound?

While the short-term outlook for palm oil remains bearish, long-term catalysts exist:
1. Supply Adjustments: Indonesia’s B40 biodiesel mandate (due by 2025) could add 3.8 million tons of annual demand, reversing oversupply.
2. Weather Risks: La Niña conditions in Malaysia could disrupt 2025 harvests, tightening supply.
3. Trade Policy Shifts: A resolution to U.S.-China trade disputes might stabilize demand for palm in Asia.

However, these factors are speculative. Analysts project palm oil prices to average RM4,000–4,200/ton in 2025, with a rebound to RM4,600/ton by year-end if policy reforms materialize. Soybean oil, meanwhile, is seen consolidating gains near $0.45/pound unless crude oil prices collapse.

Conclusion: Navigating the Oil Divide

Investors must weigh short-term pain against long-term potential. Palm oil remains vulnerable to oversupply and policy risks, with prices likely to remain range-bound until structural shifts occur. Soybean oil, backed by U.S. export strength and biodiesel mandates, offers safer upside.

The data underscores this divide:
- Palm Oil: 2024 production hit record highs, while inventories rose 10% year-on-year.
- Soy Oil: U.S. exports to China jumped 5.2 billion kilograms in January 2024, and biodiesel demand is set to grow 15% annually through 2026.

For now, the Chicago market’s verdict is clear: soy’s policy tailwinds and cost advantages are outpacing palm’s struggles. Investors should favor soybean oil futures until signs of palm’s supply-demand balance improve—or risk being caught in the oil price crosscurrents.