Soybean crush margins: An overview
What lies behind the downward trends
World soybean production has fallen over the last two years, and this is mainly due to the impact of severe weather.
The phenomenon of La Niña heavily reduced South American yields and upset growth in US production for the 2020-21 season.
The decline in world production has slowed world soybean crushing outside the US, as limited sales by Argentine farmers and negative margins in China reduce world volumes.
A recovery in world production will likely raise soybean exports, primarily out of South America, but persistent and high inflation rates in Argentina will likely prove more challenging to overcome.
Monthly data for Argentine crushing volumes indicate that crush slowed by about five percent in the first quarter of the 2022-23 marketing year and dropped by ten percent relative to last year in July.
The previous year’s below-trendline yields reduced production and supplies available to Argentine crushers, but slow farmer sales also contributed to the slowdown in crushing volumes.
While production may recover (depending on the severity of a forthcoming 3rd La Niña event), and the Argentine government may reinstate programs like the “soy-dollar”, as we saw earlier this year, to encourage farmer sales, the next challenge for the industry will be lower soybean meal and oil prices.
Fastmarkets expects world soybean meal prices to fall due to an increase in US crushing volumes and soy oil production to meet the biofuel feedstock demand from the renewable diesel production industry.
Pressure on soybean meal prices as oil demand rises
The switch from “crushing for meal” to “crushing for oil” in the US means that meal production above domestic demand will need to price at a level competitive in the export market, pressuring prices for the Argentine industry, which is the world’s largest exporter of soybean meal.
In addition, relatively low palm oil prices have pressured Argentine soybean oil prices, with the basis dropping to a level that will make Argentine soybean oil exports competitive against palm oil.
The pressure on product prices will keep Argentine crush margins at the lower end of the historical range, potentially limiting crushing volumes, even if the Argentine government’s “soy-dollar” program will be re-issued and encourage farmer sales.
While Brazil exports more soybeans than soybean products, Brazilian crush margins could also come under pressure. In addition, negative Chinese crush margins have also limited import demand for soybeans, potentially further reducing the soybean industry’s profitability in Brazil.
In China, crush margins have been at the lower end of the historical range, dropping below zero for much of the summer and just getting back to break even in mid-September.
The high price of soybeans has been the main driver of weak crush margins, so a recovery in South American production could help lift margins in the spring.
However, the increased demand for soybeans from US crushers could limit importable supplies, upsetting the potential for further improvement in Chinese margins through the end of the year.