Brazil’s soy oil export surplus could be here to stay

Brazilian soybean oil and meal shipments expected to increase by 30%, while Argentina’s crush pace slowing

Brazil is poised to capitalize on Argentina’s slow crush pace with a sharp increase in soybean oil and soybean meal exports this year, with some observers expecting increases of up to 30% year on year.

The increase reflects the heavy expansion of Brazil’s soybean planted area in recent years and comes as neighboring Argentina faces tighter availability of soy oil owing to the sluggish pace of domestic crushing.

Soybean crush margins

At the same time, crush margins in Brazil have turned positive, supporting the diversion of soybeans into the country’s processing industry, while the country’s ability to expand its planted area means the change is likely to become a regular feature.

“Currently, Brazilian crushing margins are hovering around plus $4-5 per tonne, instead of the minus $15 per tonne we saw a few weeks ago,” Victor Martins, senior risk manager at HedgePoint Global, told Fastmarkets Agriculture.

Reduced domestic biofuel blending mandates mean greater opportunities for exports

Alongside that, a reduction in domestic demand for biodiesel after blend mandates were pared back in a bid to relieve food price inflation has had a knock-on impact on soy oil.

“Brazil is managing to have such a significant jump in exports of soy oil because of the reduction in domestic consumption due to a lower biodiesel mandate,” Daniele Siqueira, senior analyst from local consultancy AgRural told Fastmarkets.

“We had a complementary conjuncture… which was the greater need of importing countries to come and look for both soy oil and meal in Brazil,” Siqueira added.

Two of Brazil’s key domestic agencies have already predicted a major increase in soy oil exports in 2022, with the Brazilian Association of Vegetable Oil Industries (Abiove) forecasting soy oil exports at 2.1 million tonnes in 2022, up 30% on the year.

The agency is also calling for soy meal exports to rise to 18.6 million tonnes, an 8% increase on last year while Brazil’s food agency, Conab, has also made similar projections.

Brazil’s soy meal exports reached 14.5 million tonnes from January to August, according to customs data, up 26.8% versus last year’s 11.4 million tonnes in the same period.

Also, from January to August, vegetable fats and oils exports – mostly comprised of soy oil –reached 1.8 million tonnes, a 150% increase from the 738,376 tonnes in the same period of 2021, according to government data.

“Global demand for oils and meals will continue to grow [in 2022] as Brazil’s main competitors - Argentina and the US - have limitations to increase their soybean acreage,” Abiove’s chief economist Daniel Amaral told Fastmarkets.

Amaral also highlighted that increased soybean oil demand means that Brazil is increasing its market share and will likely continue to play a bigger role in the export market going forward.

“Even if Argentina returns to its usual production levels, global demand trends remain robust and Brazil should continue to increase its market share globally, either via soybeans or by-products,” Amaral added.

Higher international demand for biodiesel production will boost Brazilian soy oil exports

Alexandre Mendonça de Barros, an analyst at the local consultancy MB Agro, expects the demand for Brazilian soybean oil to remain high due to expectations of firm demand for biofuel blending and biodiesel production internationally – even if domestic demand remains uncertain.

“The overall soy oil availability [from Brazil] will increase, but if biodiesel mandates continue to grow in key countries such as the US, a bigger offer coming from Brazil will still be necessary,” Barros told Fastmarkets.

Barros said a bigger soybean output in 2022-23 can allow Brazil to return to its previous soybean exports level and keep up the pace in exporting soy oil and meal, with the analyst expecting Brazil’s output to reach 145 million tonnes in 2022-23.

That would mark a significant recovery from the 124 million tonnes harvested in 2021-22 – but still remains below some other outlooks for Brazil’s next corn crop.

“It could be a 150 million tonnes crop, buts as weather projections are not good, I am being a bit more cautious,” Barros said.

“La Niña does not allow us to dream of a perfect crop yet,” he continued, referring to expectations that a third consecutive La Niña weather phenomenon could bring another prolonged period of dry weather across parts of Brazil and Argentina.

Barros’ forecasts are more cautious when compared to Conab’s and the USDA’s, with the Brazilian agency forecasting bean production of 150.3 million tonnes and exports of 91.9 million tonnes in 2023, up 22.2% from the 75.2 million tonnes forecast for 2022.

The USDA is also forecasting a 149 million tonnes harvest, with exports hitting 89 million tonnes.

Domestic demand

Brazil’s soy oil availability has also received a boost from the paring back of biodiesel blend mandates – and the future state of the country’s biofuels policy will be key.

Brazil’s biodiesel blend mandate was reduced to 10% in May 2021, down from 13%, interrupting a path that had seen mandates increasing en route to a target of 15% by 2023.

The reduction to 10% was renewed in December 2021 for the whole year of 2022, as domestic prices surged, but the government has not yet announced its 2023 plans.

It could choose to stay with the current 10% requirement or return to the policy of increases set out by the 2018 decision of the National Energy Policy Council (CNPE).

If the original schedule is followed, the mandate should be increased to 14% in January and February 2023 and then rise to 15% from March onwards, says the Brazilian Union of Biodiesel and Biojetfuel Ubrabio.

That would likely eat into soy oil production and is a major factor of uncertainty.

“We want the government to give us an answer by maintaining the original schedule as the 2022-23 crop has started and the industry needs to be able to plan its soybean purchases,” Ubrabio managing director Donizete Tokarski told Fastmarkets.

But, with the country heading into a fierce presidential race, the decision is likely to be made only after a new government has been elected.

“There is a movement towards production increases in some Brazilian biodiesel units as they anticipate the possibility of an increase. However, I believe a definition will be made after the elections are over,” Eduardo Vanin of Brazil’s Agrinvest Commodities said.

Earlier this week, a proposal for an increase was withdrawn from a draft bill after the document contained references to both a 13% and a 15% mixture to be introduced by March 1.

While it appeared to have been a clerical error, it is a clear sign the debate over the percentage mandate isn’t settled yet.

“Brazil’s market for biodiesel or renewable diesel is very large and, if the country’s biofuel policies follow the initially planned path, Brazilian soy oil exports will lose steam in the coming years,” AgRural’s Siqueira said.

With similar policy developments also already underway in the US, Siqueira believes Argentina is likely to retain the position of the largest exporter of soy oil.

However, if consumption of soy oil from Brazil’s biofuel sector continues to shrink amid regulatory issues, Brazil will likely continue to show exportable surpluses.

“How much the country will export depends on the needs of importing countries and the production and export dynamics in other exporting countries,” she stated.

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