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Crushers and traders in Brazil are buying back soybean oil paper positions in the export market to sell the physical product in the domestic market, which is paying 2-5 cents per lb above export-parity levels, market sources told Fastmarkets.
Local demand for biodiesel is leading internal buyers in Brazil to outbid the export market for soybean oil, which represented 69% of the Brazilian biodiesel feedstock in 2023.
“The demand for biodiesel is strong, and the internal market is paying well above [export parity levels],” Eduardo Vanin, lead analyst at Agrinvest, told Fastmarkets.
“Fuel distributors have to secure at least 80% of the biofuel mandate for the May-June window,” the analyst added in an Agrinvest report.
Brazil raised its mandatory biodiesel blending mandate in the diesel mixture from 12% (B12) to 14% (B14) in March.
Also, a bill that draws a horizon for biodiesel mandates in the following years – starting from 15% in 2025 and rising by 1 percentage point per year until reaching 20% in 2030 – was approved in Brazil’s Chamber of Deputies in March and sent to the Senate for appreciation.
On Wednesday, a Brazilian soybean oil cargo of 20,000 tonnes traded at a 6 cent per lb discount to underlying futures out of the Rio Grande port.
But this deal is understood to have been a contract-based obligation, since there is little incentive both from buyers and sellers to originate soybean oil from Brazil at the moment, market sources said.
Brazilian Paranaguá export premiums for May loading were assessed at a discount of 6 cents per lb to the Chicago Mercantile Exchange (CME)’s May futures on Thursday April 4.
This is considerably higher than indications from Argentina, where assessments for the same laycan were at discounts of 6.9 cents per lb on Thursday and 7.65 cents per lb on Wednesday April 3, all under May CME futures.
Thus, the current outlook makes Brazilian soybean oil exports unattractive both for buyers, who have a cheaper option in Argentina, and sellers, who can sell at better prices domestically.
The option to ship out of Rio Grande is also related to poor logistics at Paranaguá.
“There is very little space [in Paranaguá] being allocated for soybean oil [with capacity being placed] in favor of oils/fats that require heating, like palm and tallow, or diesel and methanol,” a Brazilian market source said.
Most deals done lately in the Paranaguá paper market – a physically settled financial instrument through which exporters can hedge origination costs – have been to close open short positions and sell domestically instead, sources said.
“There will be a lot of paper trading [in Brazil], but there will not be much shipping,” Vanin said, adding that most exports, expected at a minimum of between 1 million-1.2 million tonnes this year, will likely be concentrated in the second half of the year.
With Argentina’s harvest starting, the country – which is traditionally the largest global exporter – is set to dominate global soybean oil exports through the coming months.
The South American country is expected to recover from a massive soybean crop loss that hampered its crush activity in the previous season and opened up opportunities for Brazil – the second largest exporter – to increase its market share.
This year, a smaller crop in Brazil coupled with more domestic demand for oil is expected to curtail the country’s soybean oil exports, with Brazil’s vegetable oils association (ABIOVE) projecting yearly shipments at 887,000 tonnes lower than in 2023.
That said, if current crop estimates prove correct, Argentina will be well positioned not only to fill in this gap but also to push South America’s export share higher on the year.