Hedge funds pour into soybean oil and corn, betting that the Iran war will boost biofuel demand

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Hedge funds are now viewing agricultural commodities as the next explosive point amid the shock of the Iran war, building long positions in biofuel raw materials such as soybean oil and corn to hedge against the high volatility risk of directly holding oil and gas assets.

According to the latest data from the U.S. Commodity Futures Trading Commission (CFTC), since the outbreak of the Middle East conflict, hedge funds' net long positions in soybean oil have almost tripled; for corn, funds have shifted from previous net short positions to the highest net long level of the year. Oil prices have surged from $72 per barrel before the conflict to over $100. Multiple fund managers and traders have stated that agriculture is seen as the next market about to take off.

Meanwhile, the Strait of Hormuz is almost completely blocked, leading to tightened global fertilizer supply—before the war, the strait handled about one-third of the world's nitrogen fertilizer export trade volume. The United Nations has warned that if the conflict continues, rising fertilizer and fuel prices could trigger a global food crisis.

Rapid Shifts in Fund Positions: Soybean Oil and Corn Become Core Targets

The speed at which hedge funds are shifting their positions in agricultural commodities has attracted market attention. Doug King, head of RCMA Capital, described this change as a "blitz," rather than a gradual adjustment of positions.

King manages The Merchant Commodity Fund. He stated that hedge funds are flocking into soybean oil due to surging soybean crushing margins, and also because they are betting that governments will accelerate domestic biofuel production against the backdrop of the energy shock.

Currently, soybean oil, canola oil, and rapeseed oil have become main raw materials for biodiesel, and about 40% of U.S. corn demand comes from ethanol production. As governments seek to reduce dependence on vulnerable oil and gas supply routes, this trend is accelerating.

Agricultural Assets Become "Proxy Targets" for Energy Risk

Hakan Kaya, portfolio manager at Neuberger Berman, said he is building positions in agricultural commodities to simultaneously capture potential upside in biofuel and food prices, and has actively reduced direct exposure to oil and gas assets, citing the likelihood of sharp price swings if military escalation or ceasefire talks occur.

"If you look at the energy market now, it's almost a binary bet—either de-escalation or further escalation, nearly impossible to judge," Kaya said. "But one thing is certain: if energy prices stay at current high levels, it will spill over into the entire agricultural sector."

The company has constructed a "proxy basket" of agricultural commodities, including corn, soybean oil, canola oil, and livestock, to capture spillover effects from energy market shocks and inflationary pressures. Kaya pointed out that corn is increasingly becoming a "proxy bet for gasoline," and vegetable oil prices are becoming more closely linked to fuel markets.

Policy Support Strengthens Biofuel Demand Expectations

Signals at the policy level have further strengthened the market’s optimistic expectations for biofuel demand. In the U.S., the Trump administration has expanded the permission to use high-ethanol blends such as E15, in part to support American farmers—who are among Trump’s core voting base and are currently facing dual pressure from trade friction and rising fertilizer costs. Investors expect the government to further support domestic biofuel raw materials rather than imported substitutes.

In Asia, Indonesia’s government is preparing to implement a 50% biodiesel blend requirement starting in July, and Malaysia is discussing extending the biodiesel blend requirement beyond the current B10 standard.

ADM, one of the world’s largest agricultural commodity traders, raised its annual profit guidance last week despite a decline in first-quarter earnings. CEO Juan Luciano said that under tighter U.S. biofuel authorization policies, soybean crushing and ethanol margins have "significantly improved." He also pointed out that, due to the Strait of Hormuz situation, expectations for soybean shortages are also driving demand up.

Agricultural Shock May Be Limited, But Food Crisis Risks Cannot Be Ignored

Despite strong market sentiment, some industry insiders are relatively cautious about the actual impact on agricultural fundamentals. King of RCMA said that this shock is essentially an "oil shock, not an agricultural shock," and the chain reaction in agriculture primarily stems from increased biofuel demand, not direct crop shortages.

Currently, corn prices have only risen about 6%, soybean oil is up about 23%, and the agricultural market’s reaction is overall more moderate than the energy market.

Nevertheless, the UN Food and Agriculture Organization has issued warnings that if more crops are used for energy production rather than food supply, it may exacerbate a potential food crisis. Neuberger Berman’s Kaya also said: "If you see crops being used for energy instead of food, we are undoubtedly heading straight for a food crisis." This risk adds uncertainty to the current bullish trend in agricultural commodities.

Risk Disclaimer and Exclusion of LiabilityThere are risks in the market and investments should be made cautiously. This article does not constitute individual investment advice, nor does it take into account the specific investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suited for their particular circumstances. Investing based on this carries your own responsibility. ```