Vegetable oil market prices including Soybean Oil futures have experienced significant strength in recent years, affecting the price relationship between soybean oil and the other component of processing soybeans, soybean meal. Many market participants that may not be familiar with the Soybean Oil futures market may have heard the term oil share used to describe soybean oil prices relative to soybean meal prices in the agricultural press. This paper describes what oil share is and how it is calculated.
Soybean crushing is the process of crushing whole soybeans and producing soybean meal and soybean oil. Soybean meal is used as a high-protein animal feed while soybean oil is a vegetable oil used in various food, fuel, and industrial applications. Since both soybean oil and soybean meal are outputs from the soybean crush, many market participants evaluate soybean oil prices relative to soybean meal prices.
Comparing soybean oil and soybean meal prices is difficult because Soybean Oil futures are priced as cents per pound while Soybean Meal futures are priced as dollars per short ton. To overcome this difficulty, the industry evaluates Soybean Oil futures prices as a percentage of the soybean crush margin, which is the revenue received from selling both soybean oil and soybean meal. That is, the relationship between Soybean Oil futures and Soybean Meal futures is measured as soybean oil’s share of soybean crush margin, (i.e., oil share).
When a bushel of soybeans weighing 60 pounds is crushed, the conventional result is 11 pounds of soybean oil, 44 pounds of 48 percent protein soybean meal, four pounds of hulls and one pound of waste. The common method to compare soybean oil prices directly with soybean meal is to convert the Soybean Oil futures price to the price per 11 pounds and convert the Soybean Meal futures price to the price per 44 pounds since these are the outputs from crushing one bushel of soybeans.
While the Soybean Oil futures price is officially quoted as cents per pound it can also be interpreted as the price in dollars per hundredweight – that is a price of 60.00 is officially 60 cents per pound but can also be interpreted as $60 per hundredweight. Multiplying this price by 0.11 (11 // 100) converts the price of Soybean Oil futures from the price per 100 pounds to the price per 11 pounds. For example, a Soybean Oil futures price of 48.16 cents per pound is equivalent to $48.16 per hundredweight. Multiplying this by 0.11 results in a Soybean Oil price of ($48.16 x 0.11) = $5.30 per 11 pounds. That is, the soybean oil revenue for crushing one bushel of soybeans is $5.30.
Similarly, the Soybean Meal futures price is the price per short ton (2,000 pounds). Multiplying this price by 0.022 (44 / 2,000) converts the Soybean Meal futures price to the price per 44 pounds. For example, a Soybean Meal futures price of $355.80 per short ton would be ($355.80 x 0.022) = $7.83 per 44 pounds. That is, the soybean meal revenue for crushing one bushel of soybeans is $7.83.
Soybean crush components from front-month futures prices
The total margin for crushing one bushel of soybeans is ($48.16 x 0.11) + ($355.80 x 0.022) = $13.13. A market participant evaluating soybean oil prices compared to soybean meal prices would say that the oil share of the crush margin at these prices is ($48.16 x 0.11) / $13.13 = 40.36 percent. That is, soybean oil currently makes up 40.36 percent of the crush margin.
The front-month Soybean Oil futures share of the soybean crush margin has experienced significant volatility in recent years, which explains why you have been seeing the term oil share in the agricultural press.
Oil share from front-month futures prices
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.