Brazil’s soyoil premium over Arg. collapses on shortage, bio policy
The premium of Brazilian soyoil over Argentine soyoil collapsed this week after the Brazilian government allowed soyoil imports as a feedstock for biodiesel production, while Argentine crushers continued to suffer from a lack of farmer selling.
Prices for Brazilian soyoil – which historically trade around a $15/mt premium over Argentine soyoil – surged in August on a shortage of supply as Brazil exported a record volume of soybeans.
Meanwhile, demand for the soft oil firmed on the back of rising biodiesel production, causing the spread between Brazilian and Argentinian soyoil to jump to a record high of $115/mt in late September.
That opened an arbitrage for soyoil imports, which are up five-fold so far this year at 625,518 mt, official customs data showed.
Yet imports of soyoil have not been permitted to be used for biodiesel production and were only allowed to be absorbed by Brazil’s food sector, limiting the use of imported soyoil in Brazil.
That policy was changed this week as Brazil’s “ANP (Natural Gas and Biofuels Agency) allows the use of imported raw material for the production of biodiesel in the public auctions,” Brazil’s official gazette read on Wednesday.
The move was well anticipated by the industry and set to draw in “more soyoil imports from Argentina,” a Buenos-Aires trading source said.
That caused the spread between the two locations to gradually narrow from $40/mt last week to a negative $2/mt on Wednesday, when the announcement was made.
Argentina’s surge
At the same time, Argentine crushers have been struggling to source soybeans from farmers who remain reluctant to sell them due to the political situation and causing crush operations to slow in the world’s largest soyoil exporter.
“They [crushers] are having troubles getting the beans from farmers. The problem is always the same; the farmer can't get dollars, so he hedges on the physical,” an Argentine trading source told Agricensus.
Argentina is expected to crush approximately 38 million mt of soybeans this calendar year, down 9.5% on the year, Argentina’s oilseed crushing and exporters chamber Ciara-CEC, told Agricensus earlier this year, limiting the supply of the oil.
Coupled with that, there was a fresh surge in demand over the past two weeks as the rally in the CBOT soyoil futures to over a six-year high caused a “panic” amongst Indian vegetable oil importers, prompting them to jump in the market as prices rallied higher.
India – the world’s largest vegoil buyer – has started to shift demand away from palm oil and the commodity is trading near eight-year highs due to a lack of supply in Southeast Asia and as a result is favouring soyoil.
Covid-19 has helped to facilitate this shift, as soft oils such as sunoil and soyoil are mainly consumed by households where demand is often inelastic. Meanwhile, palm oil's use is more focussed on the hospitality sector, which has been hit hugely by Covid-19.
And that demand shift by India is mainly headed towards soyoil as a drought across the Black Sea region this summer ruined the sunseed crop, causing a lack of supply and sunoil prices to spike.