Brazil’s soybean oil prices for nearby deliveries have been less competitive than volumes originated in Argentina since the start of December as the domestic biodiesel industry has been reportedly outbidding the export market, sources told Fastmarkets.
“The domestic industry is bidding higher than the export market for January due to higher end-of-year demand and lower crush,” Eduardo Vanin, lead analyst at the Brazilian consulting and brokerage Agrinvest, said.
On Tuesday, soybean oil batches for January loading traded at discounts to underlying CME futures of 9.50 US cents per pound in Argentina and 8.50 and 8.00 US cents per pound in Brazil, a difference that equates to $22-33 per tonne on an outright price basis.
Soybean oil price spread
Soybean oil basis premiums in Brazil and Argentina remained broadly at parity since the start of the calendar year with Brazil slightly more competitive on occasions as a result of the massive soybean crop loss in Argentina that jeopardized the country’s crush activity.
This trend reversed in December, and some sources believe the decoupling – with Brazilian soybean oil significantly more expensive than its Argentine peer – could last up to March.
Other market participants, however, doubt such large spreads can linger for too long as price arbitrage is expected to kick in.
A Brazilian-based broker agreed that high domestic demand for soybean oil to produce biodiesel is behind the gap between Argentinian and Brazilian soybean oil prices.
They added that the delays in soybean planting in Brazil, with the risk of soybeans becoming available for processing later than initially expected, may also be providing support to Brazilian soybean oil prices, even though the country is still set to harvest a “big” crop.
The duration of this gap will depend basically on biodiesel demand in Brazil, one Argentina-based trader told Agricensus.
“Soybean oil demand in Argentina has been pretty much quiet as there is not much soybean oil around”, the trader said.
Robust downstream demand in the biodiesel sector
The biodiesel sector in Brazil is finding support from robust downstream demand as field works related to first crop planting bolster the consumption of diesel in trucks and planting machines.
Biodiesel prices rose 3.3% in the week ended on December 3 to BRL4.61 per liter as per the country’s average calculated by the Brazilian National Agency for Petroleum, Natural Gas and Biofuels (ANP) and were 8.6% above the same period last month.
Brazil’s preliminary export data for December published Monday, which accounts for the first six working days of the month, suggests that the country’s soybean oil exports have indeed lost some momentum.
The country shipped 41,359 tonnes of vegetable fats and oils, mostly composed of soybean oil, at a 6,893 tonnes daily average which is 46% lower than at the same point last year.
Brazil and Argentina are the world’s top soybean oil exporters, accounting for about 60% of global exports in 2022.
View our soybean oil prices and our analysis of soybean oil cost and biofuel profit margins
