Theoretical basis and spread analysis of cross-species arbitrage between soybean oil and palm oil
As the main oil futures products in the domestic futures market, soybean oil and palm oil have certain substitution. Both of them have * * * and independent characteristics, which is also a prerequisite for arbitrage. The so-called * * * sex means that both of them are mainly edible, and the fruits of crops and plants are used for civil consumption after being processed and pressed. The difference lies in the distinct seasonal difference between them in the field of consumption because of different raw materials. In China, the consumption of soybean oil is relatively balanced throughout the year. Generally, in traditional festivals, especially the Spring Festival, the consumption of soybean oil is relatively strong. However, palm oil enters the off-season in winter because of its high melting point, and its consumption is relatively small. Therefore, in order to increase its competitiveness against soybean oil, its price is generally relatively low in summer. The seasonal price difference between them provides an opportunity for arbitrage trading.
In addition, they can be used to prepare biodiesel. Among the global biodiesel raw materials, palm oil is the main one in Asia; Europe is dominated by rapeseed oil, and palm oil imported from Asia also accounts for a part; South America and the United States mainly rely on soybean oil.
they are also replaceable in the food industry. For example, in the production of cream, palm oil can be emulsified directly, while soybean oil needs to be hydrogenated, because hydrogenation will produce trans fatty acids, but emulsification will not. Now the raw material of cream is more and more inclined to use palm oil.
From the trend of futures prices of soybean oil and palm oil, since palm oil was listed, its futures prices have followed the trend of soybean oil futures prices, and the trend of both rising and falling is obvious, and the correlation between them is extremely high (as shown in the following table). The price of soybean oil is higher than that of palm oil, and the convergence of soybean oil and palm oil prices is the basis for arbitrage.
according to the historical price difference analysis, normally, the high price difference between soybean oil and palm oil in May contract appears in September-October, while the low price difference appears in October-March. As shown in the following figure (this figure excludes the periods with low transaction volume).
from 2119 to 2111, the price difference between soybean oil and palm oil has been in a state of interval fluctuation, and the fluctuation range is generally around 811 points. The period of high price difference in a year is usually in summer every year, which is the peak season for palm oil consumption in China. In order to obtain a more competitive sales situation compared with soybean oil, the relative price between soybean oil and soybean oil needs to be lower, so the price difference between them will be higher than 1,211 points. The price difference below 711 points appears for a short time, usually in winter and spring every year. However, this year's situation is different. The high price difference exceeds 2,111. The main reasons for such a high price difference this year are:
1. The major palm oil producing countries have huge stocks. The following picture shows the monthly inventory changes in Malaysia this year. Since June, the inventory has increased rapidly. From October to September, the total output of Malay was 13.16 million tons, while the output of palm oil peaked in October, and the inventory may continue to rise in October.
2. The reduction of soybean production leads to the increase of soybean oil. The report of USDA11 in October estimated that the output of American soybeans in 2112/13 was 2.86 billion catties, which was lower than 3.194 billion catties in 2111/12. From the beginning of 2112 to the close of October 9, 2112, the increase rate of American soybeans reached 25.76% (contract in October), and domestic soybean oil increased by about 8.73%.
3. Domestic edible oil is forbidden to be mixed with palm oil, and the recession of catering industry leads to the decline of edible demand. Before, the cooking demand of palm oil in China accounted for about 25%, the demand for food processing and instant noodle production accounted for 51%, and the cooking consumption decreased by about 511,111 tons, accounting for nearly 11% of the total consumption of palm oil in China.
However, the high price difference will eventually return for the following reasons:
1. Soybean production in South America will increase next year. According to the forecast of the US Department of Agriculture in October, the output of Brazil and Argentina will reach 36 million tons in 2112/13, which is 26.51% higher than that in 2111/12. In this case, the supply of soybeans will be abundant next year, thus suppressing the price of soybean oil.
2. The domestic edible oil supply is sufficient to suppress the price of soybean oil. The average monthly demand for edible oil in China is about 2 million tons. At present, the national reserve has about 5.5 million tons of edible oil reserves, plus about 1 million tons of soybean oil squeezed every month, as well as other oil products and imported crude oil supplements, there will be no shortage of edible oil supply in China.
3. The consumption of palm oil in India has increased rapidly. Palm oil is very common in India, and its consumption is more than twice that of soybean oil. India's palm oil imports have increased rapidly (as shown below), which will make up for the decline in China's consumption.
4. The global production of biodiesel from palm oil has increased. The Malaysian government plans to increase the biodiesel content from 5% to 7~11%, which will increase the consumption of palm oil by about 411 ~ 611 thousand tons. In 2112, the global biodiesel output was about 18.9 million tons, a slight increase of 1 million tons compared with that in 2111, while the proportion of palm oil used was gradually increasing. When the prices of crude oil and palm oil are equal, the preparation of biodiesel from palm oil will be quite competitive. At present, Brent crude oil is about $855/ton, while the price of Mapan futures palm oil is $819/ton, which is already competitive.
5. Malaysia will implement a new tariff policy (adopting the same ad valorem tax method as Indonesia, but the tax rate is lower than Indonesia) from October 1 next year, which will greatly reduce export tariffs, thus stimulating global palm oil consumption and crowding out some soybean oil consumption.
Based on the above reasons, we believe that the spread between beans and brown will return, and there is an excellent arbitrage opportunity at present.