Brazil’s soybean oil export values surge to 20-month high

Soybean oil spot port differentials in the Brazilian export market have notched a 20-month high amid tight supplies for overseas shipments, firm domestic demand and dropping Chicago Board of Trade futures, according to an S&P Global Commodity Insights analysis.

On April 11, Platts assessed the FOB Paranaguá basis for May-loading cargoes at minus 400 points to the CBOT May (K) contract. That was the highest level for a front-month shipment since Aug. 9, 2022.

Compared to the same date a year ago, the FOB Paranaguá assessment has increased by 790 points, according to Platts data.

Curiously, such strength follows the second-largest Brazilian soybean crop, whose harvest is in its final stretch. The country is likely to produce 153 million mt of the oilseed in the 2023-24 marketing year (January-December), below only the 162 million mt-record seen in MY 2022-23, S&P Global Commodity Insights estimates show.

Biodiesel mandate support

Participants link such a bullish note over soybean oil cash port differentials mainly to the higher biodiesel mandate in Brazil.

Since March, the mandatory mixture of the biofuel into diesel has been 14%, from 12% throughout 2023. That has been draining the surplus of soybean oil available for exports as the commodity is the main feedstock for the national biodiesel industry, accounting for around 70% of all the raw materials used in the production process.

The impact of this higher biodiesel mandate could already be observed. In February, Brazil exported 34,000 mt of soybean oil, reaching the low end of the historical range for the month, according to a weekly report by S&P Global Commodity Insights.

“This result was not unexpected as Brazil used more of its soybean oil to meet domestic biodiesel obligations, which are forecast to lower its exportable supply in 2024,” S&P Global analysts said.

In the domestic market, soybean oil volumes have been negotiated around 200-250 points above export values, a trader said, shadowing how heated is the internal demand for biodiesel purpose.

Apart from that, dropping CBOT references are also on the radar as lower international price references usually force traders to adjust their premium indications higher.

The CBOT front-month contract, for May (K), settled April 11 at 46.02 cents/lb, accumulating a loss of nearly 5% so far in 2024.

According to S&P Global, Brazil is expected to designate 5.65 million mt of soybean oil for biodiesel production in the MY 2023-24, more than 1 million mt from MY 2022-23.

Source: Hellenic Shipping News

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