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South America, the main supplier of soybean oil to global markets, has been undergoing profound changes in recent years. The trends we are seeing in two main markets, Argentina – the world’s largest exporter of soybean oil – and Brazil, the world’s largest producer of soybeans, will shape global trade dynamics in the coming years.
On the one hand, Argentina is once again consolidating its position as the leading exporter of soybean oil and meal after a good 2023-24 harvest, which is crucial for the recovery of its domestic soybean supply, disrupted in previous seasons by drought. On the other hand, Brazil is betting on energy transition as one of its engines of growth and expanding its biofuels policy, reducing feedstock exports to meet national supply levels, and thus reducing availability for the global market.
Tighter margins due to falling agricultural product prices, delayed planting due to warmer-than-normal conditions in Brazil and new regulations are the challenges that mark the start of the 2024-25 season in South America. At the same time, the biofuels agenda is taking off with the implementation of mandates for sustainable aviation fuel (SAF) and the expansion of biofuels policies worldwide, intensifying the competition for feedstocks in the global arena.
Sharp declines in agricultural commodity prices have marked the 2024 season. Fastmarkets’ price assessment of crude-degummed soybean oil in central Illinois went from an average of 48.4 in January to an average of 42.55 cents per pound in September, a 12 percent drop. The soybean oil future contracts in the Chicago Mercantile Exchange (CME) dropped by the same magnitude in the same period, reaching the lowest level since December 2020 and reflecting a loosened supply.
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In 2024, Argentina harvested a record-breaking soybean crop that was crucial to replenishing its domestic inventories, which were way below the historical average due to the drought-reduced crop of the prior year. Argentine crushers recovered their crushing volumes to the historical average at the beginning of the year, which was key to re-establishing the Argentine position as the leading exporter of soybean oil.
The price drop in the soybean complex through 2024 is a market response to the large crops produced in the Americas since 2023. Brazil has been growing crops for above 150 million tons since the 2022-23 season and the US has had crops of above 115 million tons for the last two marketing years. The United States Department of Agriculture (USDA) data suggests that the global stocks-to-use ratio is up from 15 percent in 2021-22 to 16.6 percent in 2023-24, forecasting another increase to 18.7 percent in 2024-25.
For the next season, Fastmarkets expects Argentina and Brazil to produce 19 million tonnes of soybean oil, three million tonnes above the year before.
The 18 percent increase in soybean oil production is driven primarily by the recovery of the Argentinian crushing industry, which Fastmarkets expects to increase its soybean oil production by three million tonnes to 8.2 million tonnes.
In contrast, Brazil is expected to grow marginally in its soybean oil production in 2024 at 10.8 million tonnes but significantly increase its biofuel feedstock domestic demand.
Fastmarkets expects that biodiesel production will grow 20 percent in 2024 and forecasts a growth of 11 percent in 2025.
The strong demand for soybean oil by the Brazilian biodiesel industry has already impacted domestic prices, narrowing the spread between Fastmarkets’ price assessment of soybean oil in the US Gulf and Brazil, which dropped from an average of 19.5 in the first nine months of 2023 to 5.54 cents per pound in the same period of 2024.
The relative movement of soybean oil prices in Brazil compared to the US reflects the biodiesel industry’s sharp increase in soybean oil usage in South America, providing fewer incentives for soybean oil exporters to sell it to the global market.
The Brazilian government recently passed the bill “Fuels of the Future,” the most significant adjustment to biofuel policy since the 1980s, establishing a robust framework for industry growth in the coming years with biodiesel mandates increases and the creation of SAF mandates.
Soybean oil accounts for 70 percent of the industry’s feedstock mix, and with the biodiesel mandate increasing to a B14 in March 2024, with further increases up to a B20 in 2030, and a one-percentage-point increase per year as announced by the government, Fastmarkets expects significant changes in the Brazilian market dynamics.
If Brazilian soybean crushing capacity remains at 56 million tonnes per year by 2026, which would imply that recent announcements of capacity expansion don’t exist, Fastmarkets expects that the country will become a net importer of soybean oil due to the increase in biodiesel demand. It is worth noting that last year, Brazil was the second leading soybean oil exporter, exporting 2.3 million tonnes, highlighting the significant changes in the market dynamics.
Fastmarkets’ analysis of recent announcements of investments in expanding capacity shows that Brazilian crushing capacity will increase by seven percent to 60.7 million tonnes per year by the end of 2026. If the announced facilities become operational, the country will remain a net exporter of soybean oil, but with significantly lower volumes. If the anticipated crushing capacity is not operational in 2026, Fastmarkets expects Brazilian soybean oil users to source soybean oil from Argentina and replace soybean oil as feedstock with other feedstocks.
As the biomass-based diesel (BBD) industry grows in the two primary soybean-producer countries (the U.S. and Brazil), significant shifts in the feedstock trade flow will happen. Like the US, which has been exporting significantly lower volumes over the last few years, Brazil is likely to curb its shipments.
If the Brazilian industry investments in second-generation biofuels (renewable diesel and sustainable aviation fuel) increase sharply in the coming years and drive domestic feedstock demand further, then the Brazilian exportable surplus of feedstocks will lower.
The growth of the Brazilian BBD industry reinforces Argentina’s position as the major soybean oil supplier for the global markets. As the biofuel industry grows, and therefore its feedstock demand, new challenges will appear in the market.
One of the challenges that the market will face with this sharp increase in the global soybean crush driven by the expansion of soybean oil demand is the destination of all the additional volume of soybean meal that will come along with soybean oil production. It is worth mentioning that when crushing beans, the process results in more than four times as much soybean meal by weight as soybean oil.
As crushers are expanding their capacity driven by the new demand that is expected by the BBD industry, soybean oil prices will have to move higher relative to soybean meal as meal demand is not likely to grow as much as feedstock demand.
As the oil share is below 50 percent, soybean meal is the main component, which accounts for around 60 percent of the soybean crusher’s revenue and, therefore, the driver of the crushing volume. Soybean meal demand has been strong in 2024, and one question to understand the market is: How long will the global market be able to absorb this extra soybean meal volume?
Fastmarkets estimates that soybean meal exports from Argentina, Brazil, and the U.S. will grow 19 percent in 2023-24, mostly driven by the recovery of Argentina, which will add more than 5.9 million tonnes of soybean meal exports to the previous season.
Although fundamentals have weighed on soybean oil prices in 2024, Fastmarkets believes that the growth of soybean oil demand will outpace the growth of soybean meal due to the sharp expansion of the global BBD production capacity. At some point, the growth in global demand for BBD feedstock will drive the oil share above 50 percent, pushing crushers to match crushing volumes to soybean oil demand rather than soybean meal demand, which has traditionally driven crushing volumes.
The tight stocks in the feedstocks market in the US, the growing demand of the global BBD industry, and the shift in the market make it seem evident that oil share will need to rise above 50 percent to keep the BBD feedstock market supplied. However, the timing of the potential move is less obvious.Fastmarkets’ current prediction suggests oil share will rise above the critical level in the late spring or early summer of 2025. However, it has been apparent for the last couple of years that oil share would need to move above 50 percent as feedstock demand grew, and other than a short period in 2022, oil share has remained stubbornly low relative to where many analysts thought it would be heading into 2025.
While 2025 is ahead of us, at Fastmarkets we are aware that soybean oil price and production trends will remain unsteady amid South American policy and climate changes.
Our soybean oil price and production forecasts are built on a comprehensive, data-driven approach that combines a deep analysis of relevant market indicators with a clear understanding of supply trends.
We take into account a wide range of factors, including historical price data, seasonal production patterns and evolving supply and demand dynamics, as well as the latest policy and climate changes impacting key South American producers. This holistic perspective allows us to capture both immediate and long-term market influences, providing you with insights that are closely aligned with real market conditions.
Our insights are designed to help you negotiate futures contracts more effectively and mitigate potential risks associated with volatility with a clearer view of anticipated price movements.
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