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

Hedge funds are treating agricultural commodities as the next breakout point amid the Iran-war shock, establishing long positions through biofuel feedstocks 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 nearly tripled; for corn, fund holdings have shifted from a prior net short position to the highest net long level so far this year. Oil prices have surged from $72 per barrel before the conflict to more than $100, and multiple fund managers and traders say that agriculture is seen as the next market poised to kick off.

Meanwhile, the near-total blockade of the Strait of Hormuz has tightened global fertilizer supplies—before the war, the strait accounted for about one-third of global nitrogen fertilizer export volumes. The United Nations has warned that if the fighting continues, continuously rising fertilizer and fuel prices may trigger a global food crisis.

Fund positions shift rapidly, with soybean oil and corn becoming core targets

The speed at which hedge funds have shifted their positions in agricultural commodities has drawn market attention. Doug King, head of RCMA Capital, described this change as a “lightning-fast influx,” rather than a gradual adjustment of positions.

King, who manages The Merchant Commodity Fund, said that the reason hedge funds are “flooding” into soybean oil is partly the surge in soybean crushing profit margins, and partly the bet that governments around the world will accelerate domestic biofuel production under the backdrop of the energy shock.

At present, soybean oil, rapeseed oil, and canola oil have become major feedstocks for biodiesel, and about 40% of U.S. corn demand comes from ethanol production. As governments seek to reduce reliance on vulnerable oil and gas supply routes, this trend is accelerating.

Agricultural assets become “proxy” targets for energy risk

Hakan Kaya, a portfolio manager at Neuberger Berman, said he is building positions in agricultural commodities to take advantage of potential price increases in both biofuels and food, and has proactively reduced direct exposure to oil and gas assets because military escalation or ceasefire negotiations could trigger sharp volatility at any time.

“If you look at the energy market right now, it’s almost a binary bet—either the situation de-escalates or it escalates further, and there’s practically no way to judge,” Kaya said. “But there is one thing that is certain: if energy prices stay at their current high levels, it will spill over into the entire agricultural sector.”

The firm has built an “agricultural commodities proxy basket” covering corn, soybean oil, rapeseed oil, and the livestock sector to capture spillover effects from energy-market shocks and inflation pressures. Kaya noted that corn is increasingly becoming a “proxy bet on gasoline,” and that the linkage between vegetable-oil prices and the fuel market is growing tighter.

Policy support strengthens expectations for biofuel demand

Policy-level signals further reinforce market optimism about biofuel demand. In the U.S., the Trump administration has expanded permission to use high-ethanol blended fuels such as E15, partly to support American farmers—which are among Trump’s core voter groups—who are currently facing pressure from both trade frictions and rising fertilizer costs. Investors expect the government to further back domestic biofuel feedstocks rather than imported substitutes.

In Asia, the Indonesian government is preparing to implement a 50% biodiesel blending requirement starting in July, and Malaysia is also discussing expanding biodiesel blending requirements beyond the current B10 standard.

Archer-Daniels-Midland, one of the world’s largest agricultural commodity traders, raised its full-year earnings guidance last week, despite a decline in first-quarter profits. CEO Juan Luciano said that amid tightening biofuel authorization policies in the U.S., soybean crushing margins and ethanol margins have “significantly improved.” He also noted that, affected by the situation in the Strait of Hormuz, expectations of soybean shortages are also driving demand higher.

Agricultural shocks may be limited, but the risk of a food crisis cannot be ignored

Despite high market sentiment, some industry insiders are relatively cautious about the actual impact on agricultural fundamentals. RCMA’s King said this shock is essentially an “oil shock, not an agricultural shock.” The knock-on effects in agriculture mainly come from higher biofuel demand, rather than direct crop shortages themselves.

At present, corn prices have risen by only about 6%, and soybean oil is up by about 23%, so the overall reaction in agricultural markets is relatively mild compared with the energy market.

However, the UN’s Food and Agriculture Organization has issued a warning that if more crops are diverted to energy production rather than being supplied for food, it could worsen a potential food crisis. Neuberger Berman’s Kaya also said: “If you see crops being used for energy instead of food, then we are undoubtedly heading straight toward a food crisis.” This risk adds uncertainty to the current bullish run in agricultural commodities.

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