Brazil-Arg soyoil spread hits record as supply dries up

Brazilian soyoil prices at ports surged to more than a seven-year high this week on continued tight supply in the domestic market with the premium to Argentine soyoil hitting a record high - a move that is likely to draw in more soybean oil imports.

Brazilian soyoil on an FOB Paranagua basis for November shipment traded at a record premium of 9.00 ct/lb over the December CBOT contract on Wednesday, equivalent to $923.25/mt FOB and its highest level since May 2013.

It is up $135/mt since the beginning of this month.

Cargoes in neighbouring Argentina – the world’s largest exporter of the soft oil – for the equivalent laycan traded at a premium of 3.50 ct/lb, or $802/mt FOB Up River, up $45/mt over the same four-week period.

It means that Brazil’s usual $10/mt premium over Argentine soyoil has surged to a record of $121.25/mt as the domestic market has run dry of soybean oil while demand has picked up.

“The buyer sells the volume back into domestic market, if the oil is not in port yet. The domestic basis is trading at +1500 ct/lb equivalent FOB Paranagua,” a Brazilian broker said.

The large spread between the domestic market and prices at port mean a trader could make up to 600 points or $132/mt per trade. However, this figure excludes any logistics costs.

“Hence, even if you do pay +900 ct/lb, you will still make a lot of cash re-selling into the domestic market,” the broker added.

After a record soybean export campaign, driven by Chinese demand earlier this year, Brazil – the world’s largest grower of the oilseed – has little supply left until its next harvest in February next year.

At the same time, soyoil demand in Brazil – the third largest diesel-consuming nation in the world – has seen a spike in soyoil-based biodiesel demand, despite measures to restrict the spread of Covid-19, as over 95% of all goods in the country are transported via roads.

The tight local supply has seen a surge in Paraguayan soybean imports and has now triggered imports of Argentine soyoil.

While Brazil tends to import around 10,000 mt-12,000 mt from Argentina on an annual basis near the end of its marketing year, imports executed so far are estimated north of 70,000 mt with the pace of imports only to speed up as the spread widens.