Middle East Conflict: Implications for Soybean Oil and a Review of Dairy Markets – Expert Recap

Webinar Overview and Speakers 

Rising geopolitical tensions in the Middle East have pushed energy prices sharply higher, with Brent crude trading above $100/bbl for the first time in nearly four years. In this webinar, Expana market reporters explored how higher energy and freight costs, and the risk of logistics disruption, are filtering into two key markets: global dairy and soybean oil and vegetable oils. A central theme across both discussions was the tension between sentiment-driven volatility and underlying fundamentals.

Meet the Speakers: 

• Tosin Jack – Expana Director of Market Reporting – expert on commodity and protein markets 
• Jose Saiz – Expana Dairy Market Reporter
• Kyle Holland – Expana Senior Market Reporter, Oilseeds and Vegetable Oils

Key Takeaways

• Dairy markets are reacting quickly to headlines, but supply fundamentals currently point to ample availability in major exporting regions.
• Iran’s growing role in dairy trade, notably skim milk powder, increases sensitivity to disruption in regional logistics and demand patterns.
• Soybean oil futures have rallied strongly alongside crude, but physical trade has not kept pace, raising questions about how long the move can last.
• Freight rerouting via the Cape of Good Hope is manageable in the near term but increases costs and can create delays and congestion.
• Fertilizer and feed costs are a key medium-term risk factor across agriculture if elevated energy prices persist.

Dairy: sentiment volatility vs. ample supply

Iran has emerged as the fourth-largest exporter of skim milk powder globally, behind the EU, the US and New Zealand. This growth has been supported by government strategy to expand non-oil exports. Iran’s competitive pricing and proximity have made it an important supplier to neighboring markets, particularly Afghanistan and Pakistan, while Russia is a key destination for Iranian butter exports.

Prices had already rallied before the latest escalation

Expana benchmark skim milk powder prices have risen more than 30 percent over the past three months. The rally was linked to international demand, including buying from the Middle East and Southeast Asia. Speakers noted that buyers earlier secured coverage at low prices, which suggests some level of security stocks in the market.

Supply-side fundamentals remain comfortable

Despite market anxiety, the dairy discussion emphasized that fundamentals tend to prevail. After several years of stagnation, milk production in major exporting regions has returned to growth, contributing to a sense of oversupply. Europe has seen increased output and stock availability, with producers favoring products with longer shelf life. This has supported production growth in skim milk powder and butter, alongside steady cheese output. Cheese accounts for roughly half of EU milk utilization.

Logistics risks: delays and costs more than outright disruption for now

If key regional routes become constrained, the most exposed importers include Iraq, Kuwait, Bahrain, Qatar and the UAE. Saudi Arabia may retain flexibility through Jeddah on the Red Sea. Market feedback suggested ports such as Oman remained open, but shipping companies are increasingly avoiding the Suez Canal and rerouting. This can extend transit times. Europe to Southeast Asia could rise from roughly 9 to 10 weeks to as much as 12 weeks.

The presenter also challenged claims that up to 20 percent of EU dairy exports were at risk, citing European Commission data indicating exposure closer to 4 to 5 percent.

Dairy scenarios: how the impact could escalate

Speakers outlined potential outcomes depending on duration:

1. Short disruption measured in weeks: Volatility remains dominated by sentiment, with limited trade flow impact due to stocks and rerouting.
2. Prolonged disruption from roughly 1 to 4 months: Rerouting increases costs, some flows may shift to air freight, and Asian buyers may prefer New Zealand and US supply for perceived security and continuity. Import losses are most likely in Qatar, Bahrain, the UAE, Iraq and Kuwait, while producers may need to place product more aggressively during peak production.
3. Extended disruption beyond that window: Higher energy, fertilizer and feed costs could reduce profitability and accelerate expected milk output declines later in the year, potentially shifting the market balance.

Soybean oil and vegetable oils: futures rally vs. sluggish physical demand

Soybean oil rallied to multi-year highs in futures markets, reflecting its correlation with crude oil. Market participants also expect higher energy prices to improve biodiesel economics, particularly in the US and Brazil, increasing demand for soybean oil as a feedstock.

Physical markets are not confirming the move

A key message was the disconnect between paper and physical markets. Futures prices surged, but physical trade has been muted across soybean oil and many other vegetable oils. End users have largely stayed on the sidelines. In some cases, cargoes originally destined for Iran and the UAE were reportedly resold at discounts due to port and logistics uncertainty, which added softness to physical pricing.

Abundant soybean supply is a counterweight

Fundamentals still point to large global soybean availability. Brazil is harvesting a large crop, although harvest progress is slightly behind last year. The US achieved record yields, and Argentina also has large supplies. The webinar also noted that key soybean flows to China generally avoid the most sensitive routes, often shipping via the Cape of Good Hope.

China demand remains the open question

The discussion framed China as an important uncertainty. Supply access is not the constraint. The more relevant question is whether China wants to buy aggressively. Buying interest appears restrained, supported by high inventories that include significant soybean oil stocks, and limited urgency to extend forward coverage.

Brent’s forward curve has been in backwardation, with nearby prices above forward months. Speakers noted this structure often signals expectations that the current risk premium may be temporary. This supported the view that the soybean oil futures rally may be overextended if physical buying does not strengthen.

Rising input costs: fertilizer risk remains a major watch item

Beyond immediate price moves, fertilizer was flagged as a key medium-term risk. Higher energy prices are feeding into fertilizer costs, with reported increases of 30 to 50 percent for some products. Countries reliant on fertilizer imports, including Brazil, could face higher costs and logistical complications if disruptions or rerouting persist.