Latin American soybean oil basis surge on improving demand, supply worries

South American soybean oil export differentials surged in August, posting the second-largest increase so far this year amid improving demand from Asia, worries on local supply, and echoes from biodiesel demand in Argentina, Brazil.

On Aug. 31, S&P Global Platts assessed the Argentinian FOB Up River basis for October loading at minus 50 points to the corresponding CBOT futures contract, marking a 530 points rise throughout last month for a front-month loading assessment (1 cent = 100 points). The surge was behind only the 740 points increase seen in July.

For Brazil, the FOB Paranagua basis increased by 460 points in the period to plus 30 points to CBOT. The rise just missed the 670 points upward movement recorded in July.

Indian demand shows up

Support for premiums levels during August partially came from signs of resurgence in export demand for soybean oil, as Indian buyers looked for supplies from Argentina, the world’s largest exporter, market participants told S&P Global Platts.

A heavy buyer of Argentinian soybean oil, India Aug. 20 announced a cut in its import duty on crude soybean oil and sunflower oil by 7.5% to 30.25%, aiming at a curb on rising domestic prices as the Asian nation is the global top importer of edible oils.

There were also Argentinian biodiesel cargoes traded in August, although the exact volume remains unclear. S&P Global Platts Analytics pegs Argentina’s biodiesel exports in 2021 at 900,000 mt, from 650,000 mt in 2020, with production increasing by 12.4% on year to 1.3 million mt.

Such Argentinian transactions supported local premiums as soybean oil is the main feedstock for biodiesel production in both Argentina and Brazil. Firmer demand for biodiesel could eventually redirect part of soybean oil supplies from the FOB side to local biodiesel producers, reducing the availability for exports and, therefore, supporting basis levels.

Since Argentina and Brazil are competing soybean oil sources for international buyers, rising premiums in one country is usually followed by increasing basis levels in the other.

Slow farmer selling

Improving export demand has been taking place amid tight spot supplies of soybean oil for export in Argentina. Tightness of supply is due to a slow pace of soybean sales by farmers, impacting operations by crushers already dealing with poor margins, the participants added.

Farmers in Argentina have sold 28.5 million mt of soybeans so far in the 2020-21 marketing year (April-March), according to the latest data released Sept. 1 by the Ministry of Agriculture. The quantity is 6% lower than the 30.3 million mt sold by this time last crop cycle.

Brazil’s biodiesel auction supports premiums

In Brazil, a public auction to secure biodiesel supply for mandatory blend into diesel in September and October also contributed to support basis levels in the region, sources said. The auction, that occurred earlier in August, traded 1.3 billion liters of biodiesel, from around 1.5 billion liters offered. The volume came within expectations, although some estimates pointed to more than 1.4 billion liters.

Local biodiesel producers rushed to guarantee soybean oil supplies for their operations, pushing Brazilian domestic premiums up and, consequently, FOB Paranagua basis levels too. “Besides that, some crushers might reduce activities due to difficulties to buy soybeans (from farmers). So, soybean oil supply for the market is likely to be even smaller,” a trader said by the time of the auction.

According to S&P Global Platts Analytics, Brazil is expected to produce 6 million mt of biodiesel in 2021, from 5.66 million mt last year. Virtually all of biodiesel produced in Brazil is for domestic use.

Brazil is poised to produce 9.2 million mt of soybean oil in the 2021-22 season, with exports totaling 1.3 million mt, while Argentina’s output is pegged at 8.6 million mt, with overseas shipments seen at 6.5 million mt, still according to S&P Global Platts Analytics.

S&P Global

Tags: India, biodiesel, South America, soy oil