Brazilian FOB soybean oil prices likely to remain at unusual discount to Argentina’s FOB

Brazilian FOB soybean oil prices are likely to remain at an unusual discount to South American rival Argentina’s FOB Up River complex as the sluggish pace of crushing in the country tightens up soy oil availability, trade sources have told Fastmarkets Agriculture.

Usually, soybean oil cash prices for Brazil trade at a higher price than Argentina, based on production levels, freight advantages and other factors, but the slow pace of crush in the world’s largest soy oil exporter has supported Argentina’s FOB values and driven them above those of Brazil.

“Usually, Argentina soybean oil trades with a 20 ct per lb discount versus Brazilian levels… now we have seen Brazil cheaper than its peer,” HedgePoint Global’s senior risk manager Victor Martins told Fastmarkets.

The price differential between the two origins has been widening steadily in August, with market participants expecting that trend to continue.

Brazilian soy oil basis values were last assessed at a 6.5 ct per lb discount under the October future on August 22, resulting in flat prices of $1,324 per tonne at Monday’s close.

On the other hand, Argentine soybean oil basis values were at 5.5 ct per lb under the October futures as tighter soy oil availability resulted in a firmer basis versus Brazil, resulting in flat prices of $1,346 per tonne.

Brazil has been operating at a premium versus Argentina for most of 2022 but has shown signs of trending below Argentine values from August 2.

Soybean crush

Argentina is reporting a slowdown in soybean crushing due to a sharp decline in soybean farmer sales this season.

The latest update from Argentina’s agriculture secretariat showed that 3.47 million tonnes of soybeans were sent to the crush in July, down 11% from the previous month and 10% down on the same point of last year.

As a result, the output of soy oil and soy meal fell by 12% for each product in July, thus tightening availability in Argentina.

“Argentina’s availability is expected to continue to be tight owing to poor crush margins and subdued farmer selling… while in Brazil the crush margins are improving so higher availability of soyoil is expected,” an Argentine trade source told Fastmarkets.

“As a result, Brazilian soy oil may continue to gain competitiveness against Argentine soy oil,” the source added.

Earlier this month the Brazilian Association of Vegetable Oil Industries (Abiove) raised its 2022 soybean crushing estimates to 48.6 million tonnes, up from its previous estimate of 48.3 million tonnes.

“As crushing margins turn positive in Brazil, we expect industries to lift soybeans from the domestic market, then lock up positive crush margins by selling downstream FOB paper premiums, for both oil and meal,” Martins added.

According to the USDA, Argentina is poised to export 5.8 million tonnes of soy oil in 2022-23, up 8% on the prior season, meanwhile, Brazil’s soybean oil exports have been revised up 7% from earlier estimates to come in at 2.13 million tonnes in 2022-23.

Keep up to date with our analysis of the vegetable oils market and what is driving demand for soybean oil.