Organic Canola & Soybean Oil: Do They Work Off The CBOT Too?

Posted by Hannah Broaddus

RBD Canola Oil and RBD Soybean Oil are all based of off a set parameter — the Chicago Board of Trade, also called the Board, the CBOT or the CME Group depending on who you’re talking with. This is the baseline for pricing, so that producers and suppliers can offer standardized pricing.

But what if you’re not buying the industry standard refined, GMO canola or soybean oil? What if you need organic canola oil or organic soybean oil? Does the pricing for those oils work in the same way? We’ll fill you in.

Organic Canola Pricing CBOT

 

The CBOT: Standardized Pricing For Canola & Soy

Most of the soybean and canola that is sold on today’s market is genetically modified and refined. This is the cheapest oil that’s used in most fryers, restaurants, food service and manufacturing today.

The pricing for this oil is typically based off of the CBOT (Chicago Board of Trade). If you buy large enough volumes, your pricing will be based of the market allowing you to lock in future pricing, contract for a specific price range.

The beauty of this system is that if you can learn the cycles, look at the risk factors, and decide on your contracting strategy, you can manage your risk just like you would with an investment strategy or stock portfolio.

The way pricing works is that you can also typically see your “overage” on top of the board. That board price doesn’t include the cost of the refining, of freight to get it to your supplier, labor costs to pack it up, or packaging. The overage over the board includes all of these different pieces. But with an ever changing market, you can begin to pinpoint exactly how your costs are being structured and put together by your suppliers.

This system is complex yet simple, and allows you to manage a large portfolio of oil buys along with your company’s risk. It also increases supplier transparency, so you can see where your prices are coming from.

 

The Organic Market: What Price Is Based Off Of

What if you buy Organic Canola Oil or Organic Soybean Oil? Unfortunately, these markets are still deemed within the “specialty oil” world and pricing is typically done on a flat basis. This means that prices are based on the supply and demand that each particular supplier is seeing in the market, and the pricing will move up and down accordingly.

The best thing to do with these oils is to work with a company who is familiar with them, and who has a good pulse on the organic oil market. Booking these oils requires good communication, and it can help to work with a supplier who has relationships with multiple mills to help mitigate supply risks.

In this case, this pricing isn’t going to be very complex — you can simply ask for the flat price for your current volume and time period of delivery. Just make sure that it meets the specifications you’re looking for. With this system the price isn’t going to be based on some larger market indicators like the CBOT.

 

Organic Soybean Oil Pricing

 

Moving From Supply & Demand To The CBOT Pricing Strategy

Just because the organic oil market is based on supply and demand today doesn’t mean that’s how it will always be. Non-GMO Canola Oil used to be considered a specialty oil that wasn’t based off the CBOT until not that many years ago.

Now, because the volumes and demand have gone up so much, this oil is based off the CBOT and you can book it using overages and a basis just like you would do with a conventional RBD contract.

This change in pricing structure naturally developed as the Non-GMO Canola Oil market grew and more large players entered the scene.

I can only assume the same on the organic side of things — if demand continues to grow and the market develops, at some point the pricing structure might also become commoditized. We won’t rule it out just yet!

Topics: Organic, Canola Oil, Soybean Oil

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