Brazilian crushers shrug off 10% mandate blow on good margins

Soybean processing volumes in Brazil are expected to remain supported into at least the first half of next year despite the blow to the industry following the decision to leave the country's biodiesel blending mandate unchanged at 10%, trade sources have told Agricensus Wednesday. 

While the industry was anticipating an increase in the biodiesel mandate from the current 10% to 13% for January-February and 14% from March, high prices for meal and oil are expected to continue to provide good processing margins.

As such, good demand is likely to support soybeans going into the grind through the first half of 2022.

“While the entire sector took a blow due to biofuel mixture reduction, current forward and spot crush margins do not reflect this setback,” Victor Martins of HedgePoint Global told Agricensus.

“Looking at forward crush margins, for February, Brazilian plants have a positive gross margin of over $50/mt, and looking at March 2022, margins are pretty positive as well, paying the crusher over $39 per mt,” added Martins.

“Crush margins are likely to remain positive for at least the first half of next year,” Eduardo Vanin, from Brazil’s Agrinvest commodities, said to Agricensus.

In November alone, the soybean crush in Mato Grosso - the largest soybean producing region in Brazil - jumped 15.2% over the month to 856,990 mt, with expectations of further increases on the month in December.

However, December is known to be the month where companies undergo maintenance to prepare for the beginning of the new season from January in a move which would normally be expected to limit the increase in crushing volumes.

“Despite higher prices [for meal and oil], processors are not likely to postpone this to January, when available soybean volumes are bigger than in December,” IMEA’s market intelligence manager, Monique Kempa, told Agricensus.

The Mato Grosso agriculture institute, IMEA had provisionally forecast December soybean crush to reach 1.3 million mt, but sources told Agricensus the volume is likely to come in closer to 858,000 mt.

Nonetheless, despite that downward revision, it would still be at a jump of 21% on the year if realised.

“Because of the maintenance in December, crushers have been committing forward volumes for February/March, which in turn stands for their most profitable time frame,” Martins added.

It is reported that some crushers have already stopped in December ahead of the imminent soybean harvest, which is expected to be at a record high this season, with BrazilAgro already pointing out that the 2021/22 crop is likely to be the best crop in history.