The global supply of these vegetable oils is heavily concentrated in a handful of regions, rendering the market susceptible to localized disruptions and other supply-side risks such as inclement weather. The palm oil supply chain is heavily anchored in Southeast Asia, with Indonesia and Malaysia collectively accounting for more than 80% of global exports.

The global soybean oil export market is dominated by South America, concentrated largely in Argentina and Brazil, which are among the top three soybean producers in the world alongside the United States; Argentina has historically served as the world’s leading exporter of soybean oil, while Brazil also operates substantial crushing and export capacities.

At the center of this heavily concentrated global supply chain sits India as an important arbiter of international vegetable oil trades. As a top consumer, India holds a substantial domestic deficit, importing upwards of 16.7 million metric tons annually.² As the world’s largest importer of vegetable oils, India’s purchasing behavior is one of the primary drivers of global prices.

The Indian market is highly price sensitive, driven by a rapidly expanding commercial food sector. Indian refiners constantly monitor the price spread between palm and soybean oils, and shifts in relative pricing can trigger reallocations of import volumes. For instance, if Southeast Asian palm oil prices surge due to tightening supplies, Indian buyers will pivot toward South American soybean oil. Furthermore, Indian policy interventions such as import duty adjustments act as levers on global trade, accelerating or cooling imports. Ultimately, whether global crushers are refining palm in Asia or processing soybeans in the Americas, their profitability remains inextricably linked to government policies and price sensitivities of Indian consumers. Consequently, price fluctuations are commonly seen across these markets, and this volatility poses significant operational and financial challenges to market participants.

To address these challenges, CME Group, in partnership with Fastmarkets, has launched a series of South Asia Vegetable Oil futures contracts.³ These products include:

• 7IF - South Asia Soybean Oil (Fastmarkets) futures
• IPF - South Asia Crude Palm Oil (Fastmarkets) futures

• 7IS - South Asia Soybean Oil (Fastmarkets) vs. Soybean Oil futures
• IPS - South Asia Crude Palm Oil (Fastmarkets) vs. USD Malaysian Crude Palm Oil futures

The South Asia Vegetable Oil futures contracts are financially settled against the Indian soybean oil and crude palm oil import prices published by Fastmarkets. The final settlement prices for the contracts are based on the calendar month average of the corresponding Fastmarkets prices.

A calendar month average (CMA) is the calculated average of daily prices recorded over the specified month. While the outright contracts represent the India-delivered soybean oil and crude palm oil prices, the differential contracts closely resemble the cost-and-freight (CFR) basis markets but utilize a calendar-month average. By averaging, it provides a balanced representation of the market instead of a single, highly volatile daily value. Together, the South Asia vegetable oil futures contracts provide market participants with robust instruments for managing exposures linked to Indian import prices.

There are various trading and hedging strategies available, and individual market participants will have their own preferences. However, the following hypothetical examples illustrate how market participants can utilize CME Group futures markets to manage price risks effectively.⁴

In February, the Indian food processor committed to purchasing 15,000 mt of physical soybean oil from its supplier, to be delivered in May. Instead of negotiating a fixed price upfront, the two parties decided to benchmark the purchase against the South Asia Soybean Oil (Fastmarkets) futures. (The contract size for the futures is 10 metric tons). The agreed physical sale price is the May futures contract's final settlement price plus a $15/mt premium.

At the same time, the processor entered the futures market and bought 1,500 lots of May futures (equivalent to 15,000 mt of soybean oil) at $1,081/mt. The futures contract financially settles based on the Fastmarkets assessment for Soyoil CFR India. The final settlement price equals the calendar month average of the Fastmarkets’ assessments published during the futures contract month (May).

By the end of May, the price of the futures had decreased, resulting in a final settlement price for May futures of $1,063 per metric ton. Therefore, the food processor bought 15,000 mt of physical soybean oil from its supplier at $1,078/mt ($1,063/mt futures price + $15/mt premium), costing a total of $16.17 million.

In the derivatives market, the 1,500 lots of May futures contracts final-settled at $1,063/mt, resulting in a loss of $270,000 ($18/mt loss × 1,500 lots × 10 mt).

With the hedge factored in, the final cost of the soybean oil purchase for the Indian food processor is $16.44 million, or $1,096 per ton. This perfectly equals the original June futures price of $1,081/mt at which the firm hedged in February, plus the agreed $15/mt premium.

In May, the Indonesian palm oil supplier committed to supplying 20,000 metric tons of palm oil per month to the Indian market in the third quarter (Q3) of the year. The firm already holds positions linked to benchmark Malaysia prices and wants to lock in the India basis for Q3 using the South Asia Crude Palm Oil (Fastmarkets) vs. USD Malaysian Crude Palm Oil futures. (The contract size for the futures is 10 metric tons).

To achieve this, the firm entered the futures market and sold a Q3 quarterly strip of 2,000 contracts per month at $108/mt. This trade comprises 2,000 contracts of July futures, 2,000 contracts of August futures, and 2,000 contracts of September futures, totaling 6,000 futures contracts.

• July futures: At the end of July, the 2,000 contracts expired and final-settled at $98/mt. The $10/mt decrease compared to the transacted price created a profit of $200,000 ($10/mt × 2,000 lots × 10 mt).
• August futures: At the end of August, the 2,000 contracts expired and final-settled at $104.75/mt. The $3.25/mt decrease compared to the transacted price created a profit of $65,000 ($3.25/mt × 2,000 lots × 10 mt).
• September futures: At the end of September, the 2,000 contracts expired and final-settled at $112.25/mt. The $4.25/mt increase compared to the transacted price created a loss of $85,000 ($4.25/mt × 2,000 lots × 10 mt).

Across the three months of the third quarter, the futures positions generated a total net profit of $180,000, managing the firm’s exposure to the fluctuating basis.

As a major focal point of global vegetable oil consumption, India's dynamic import demands and price sensitivities will continue to drive the market sentiment and flow of global trade. For international suppliers, refiners, and food processors, this means that localized disruptions or shifts in Indian policy can rapidly ripple through their bottom lines.

By leveraging targeted financial instruments like CME Group South Asia Vegetable Oil futures, market participants can transform unpredictable price swings and basis risks into more manageable outcomes. Those who actively integrate hedging and trading strategies into their operations will likely stand a better chance in protecting their profit margins, ensuring supply chain stability and thriving within this complex global marketplace.

For more information on using South Asia Vegetable Oil futures in your risk management strategies, please contact Nelson.Low@cmegroup.com or KengHui.Liao@cmegroup.com.

1. USDA
2. The Economic Times
3. Visit www.cmegroup.com/south-asia to learn more about these contracts.
4. These hypothetical examples do not factor in trading fees and other costs.