Brazil soybean oil export values strengthen to a premium to CBOT

Brazilian soybean oil spot export values strengthened to a premium to Chicago Board of Trade (CBOT) futures for the first time in nearly two years amid a mix of supportive factors, from crop concerns to tax issues.

On June 11, Platts assessed the FOB Paranaguá basis for July-loading cargoes at plus 100 points to the CBOT July (N) contract. It was the first time a front-month shipment marked a premium over international price references since July 6, 2022.

As for outright prices, the Platts FOB Paranaguá assessment has risen 13% so far in 2024, reaching $984.81/mt on June 11.

According to participants, a round of short covering has added further support to the Brazilian soybean oil export market recently, but other fundamental aspects have also played a bullish role.

On June 4, the Brazilian government issued a provisory measure to limit credit compensation from PIS/Cofins payments, raising criticism among agricultural exporters while traders calculate an impact of up to $15/mt in crush margins. The MP 1227/2024 ended up being partially dropped by the Congress.

"This change injected volatility in the market and likely discouraged farmers from engaging with it," S&P Global Commodity Insights' analysts said in a weekly report. "Farmers are holding on to a near-record number of soybeans at this point in the season, so further barriers to farmer selling will likely keep the basis tight in Brazil."

Apart of that, heavy rains, floodings in May across Rio Grande do Sul triggered some supply concerns as the Brazilian southern state is a key soybean crusher.

The Technical Assistance and Rural Extension for Rio Grande do Sul, or Emater-RS, cut its estimate for the state's soybean crop to 19.53 million mt from the previous prediction of 22.25 million mt due to weather impacts. Around 1.50 million hectares were affected, the agency said.

The Brazilian soybean oil export market has indeed entered 2024 on a more supportive note amid a higher domestic biodiesel mandate as from March, which reduced the availability of edible oil to be shipped overseas. Soybean oil is the main raw material for the country's biodiesel industry.

S&P Global estimates that Brazil will export 1.60 million mt of soybean oil in MY 2023-24, compared with 2.33 million mt in MY 2022-23

Weaker CBOT futures also contribute to the upward movement in spot soybean oil basis levels, sources said. So far this year until June 11, CBOT references have dropped nearly 10%.