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As Brazil’s biodiesel mandates continue to increase, the domestic soyoil market has undergone a significant transformation, with prices increasingly diverging from export benchmarks. This structural shift has created challenges for market participants relying on outdated export-parity pricing models.
This article is also available in Portuguese
Brazil’s biodiesel program started in 2004 with the creation of the National Program for the Production and Use of Biodiesel (PNPB). Biodiesel blending mandates were first set at 2% (B2) on a voluntary basis in 2006, turning into a mandatory blend in 2008.
The biodiesel market in Brazil has worked since 2005 through a bi-monthly public auction system. This changed in December 2021 when the auction system ended and was substituted by open market purchases. Buyers and sellers, however, kept the bi-monthly negotiations, with biodiesel prices set based on Chicago Mercantile Exchange soyoil futures, soyoil basis premiums at the port of Paranaguá paper market, the exchange rate between the US dollar and the Brazilian Real and a fee agreed on by the parties involved. This was when export premiums were introduced in biodiesel pricing.
At that point, in early 2022, Brazil’s biodiesel mandate had just been lowered to 10%. Brazil was exporting 1.65 million tonnes of soyoil per year and consuming 8.02 million tonnes domestically, with biodiesel production at 6.77 million m³ according to data from the Brazilian Vegoils Industry Association (Abiove).
This outlook has changed drastically over the past years. In 2025, Brazil’s blending mandates increased from B14 to B15. The sector is mainly responsible for the ramp up in the domestic consumption of soyoil, forecast to reach 10.5 million tonnes in the year while exports are pegged at 1.35 million tonnes, still according to Abiove.
Looking ahead, this outlook of increasing biodiesel-driven domestic soyoil consumption and stagnating to dwindling soyoil exports should linger, especially considering prospects hovering around the Fuels of the Future law, which enables the government and its regulatory agencies to increase the mandatory mandate by one percentage point per year until reaching B20 by 2030.
The current level of biodiesel blending mandates, the expectations that they can continue to increase through the coming years and potential or upcoming impacts on federal and state tax regimes and benefits in Brazil created a structural decoupling between export and domestic soyoil prices – and, with it, a dysfunctionality in the current biodiesel pricing mechanism and risk management strategies.
Between the end of 2023 and the beginning of 2024, the announcement that the biodiesel mandate would be raised from B10 to B12 in March underpinned a surge in domestic demand. This led to a mismatch between domestic soyoil prices and export-parity values and led several market participants to buy back positions on the export market to re-sell domestically at higher prices.
In 2025, the mandate increase from B14 to B15 was postponed from March and only implemented in August. This created room for higher export activity than initially anticipated in the first half of the year. But after B15 was enforced, a combination of high soybean prices, large export commitments and the anticipation of scheduled maintenance at crushing facilities sent domestic soyoil prices skyrocketing and created a large gap between local prices and export-parity values.
Market dynamics have also been impacted by other factors such as the change in Brazil’s tax system approved in 2024 and scheduled to phase in from 2026 – which will likely change the pricing structure of the soybean crush industry since many crushers benefit from special local tax incentives – and the legislative and juridical clashes developing around the Soybean Moratorium (a voluntary agreement not to buy soybeans from areas deforested after 2008) and the recent reactions to it, with states like Mato Grosso having cut back tax incentives to companies that abide to the Moratorium.
The Paranaguá soyoil paper market is where export premiums, which integrate the biodiesel pricing formula, are traded.
Brazil’s soyoil exports are not projected to grow through the coming years, but they will not disappear either since Brazil holds a very good cost of opportunity to complete Argentine soyoil cargoes that are loaded with lower volumes due to reduced river port drafts at the key Up River hub.
This gives the Paranaguá market a decent level of liquidity for nearby and future loading months, which is a key factor for Brazilian crushers to hedge and lock in their margins over the year.
That said, the biodiesel pricing model based on export prices has always carried an inherent problem: The Paranaguá market that should work as a hedging tool for the industry is not easily accessible to all.
It is very hard and risky for biodiesel producers that are not large soybean crushers to operate in that market since taking positions without physical soyoil volumes to export would expose them to potential losses if, for example, they need to exit a short position.
The current model was never ideal for part of the industry that struggled to hedge their operations in the export market. But with the recent changes in Brazil’s soyoil and biodiesel markets and the large spreads between domestic and export soyoil prices, two new problems extremely hard to overcome emerged within the biodiesel pricing mechanism:
In the September-October period, biodiesel fees were set mostly below 200 Reais per m³ in Mato Grosso. This followed a period (July-August) when the spread between local soyoil prices in Mato Grosso and export values was not expressive.
Between the beginning of September and October 24, however, the spread between Soyoil fob Alto Araguaia prices in Mato Grosso and fob export prices at the port of Paranaguá exploded to an average of 5.65 cents per lb ($125 or 670 Reais per tonne), with biodiesel producers taking a big hit.
Mato Grosso was probably the worst-hit state in the September-October period by the surging spread between domestic and export soyoil prices – but the situation was also seen in the rest of the country in varying degrees.
This forces biodiesel producers and consumers to include the mismatch between domestic and export prices into the fee that was initially intended to reflect only logistical (transportation) costs and operational margins. This hampers the transparency and effectiveness of the current pricing model.
The problem is that on top of making the biodiesel fee and pricing opaque, the current model makes it impossible to hedge against what became a regular market dynamic of large mismatches between local and export prices. Biodiesel producers are carrying a greater risk, with reduced predictability as to what their operational costs and financial results will be in the coming two months when agreeing on prices for the period.
This all makes a strong case for adopting domestic soyoil prices as a reference for biodiesel pricing: it will increase the correlation between biodiesel prices and production costs; make fees more transparent as a direct indicator of logistical costs and operational margins; and create a hedging tool that will reduce risks and improve the industry’s predictability both for biodiesel producers and fuel distributors.
“Market dynamics have been changing and a select few have been able to successfully adapt and evolve. There are already new and improved ways and instruments to work this biofuel and feedstock price risk management — you must know what you are looking for. It is already a given that tracking the Paranaguá benchmarks traditionally is no longer the best practice.” Joao P. Almeida, founder of J.PACTA, an industry reference and Senior Commodity Board Advisory, said.
To help tackle the problem, Fastmarkets launched three domestic soyoil price indications in August 2025:
Alongside the new prices, Fastmarkets is actively discussing with market participants what initiatives could be developed to increase market transparency and efficiency across the industry, improving operational and financial conditions and enhancing better hedging tools and strategies for biodiesel producers and fuel distributors at the same time.
It is time for the biodiesel ecosystem to take the next step towards a better pricing model that will help foster the sector’s growth, not be an obstacle to it.
Our soybean oil prices are market-reflective, assessing both the buy- and sell-side of transactions and are intended to be used as price references for negotiation and in physical spot and future contracts, as well as the settlement price of financial derivatives. Our price data is unbiased, verified and IOSCO-compliant.