Latin American soybean oil prices return to pre-war levels amid weaker demand

South American FOB soybean oil outright prices have fallen by nearly 30% from all-time highs reached in late April, back to pre-Russia-Ukraine war levels, as demand has been weak while the global vegetable oil market is experiencing worsening macroeconomic conditions.

Both the Argentinian FOB Up River and the Brazilian FOB Paranagua soybean oil prices for August dates were assessed at $1,391.34/mt June 23, the lowest for a front-month loading cargo since Jan. 24, according to Platts data from S&P Global Commodity Insights.

Edible oil prices posted a sharp rally over the first half of 2022, with the Russian invasion of Ukraine on Feb. 24 fueling this upward movement as the conflict boosted crude oil prices and blocked several sunflower oil shipments from the Black Sea – a region that accounts for around two-thirds of the world's production of this commodity.

In addition, Indonesia imposed on April 28 a ban on palm oil exports to curb rising domestic prices, leading to the Chicago Board of Trade soybean oil futures seeing 90 cents/lb highs as traders foresaw tighter global vegetable oil supplies.

The FOB Up River and the FOB Paranagua soybean oil outright prices were assessed at historical highs above $1,900/mt on the same day, as per S&P Global data.

The scenario has changed since then. Indonesia has resumed palm oil shipments, increasing its export permits – the nation is the world's largest producer and exporter of the edible oil.

Besides, demand from key buyers, namely India and China, has been tepid in recent weeks. Indian buyers seem well covered for nearby requirements while Chinese traders struggle with local coronavirus-related lockdowns, market participants told S&P Global.

To add to the bearish tone, there are also fears of a global recession.

"The soybean oil prices at both the US and South America are currently trading down on account of easing in demand due to worsening macro conditions," Anilkumar Bagani, commodity research head at edible oil brokerage Sunvin Group, said.

The CBOT soybean oil futures are now trading in the mid-60 cents/lb, the lowest levels since mid-February.

"The weakness in energy prices from the recent highs, talks of lowering biofuel mandates in the EU and Indonesia's strong resumption of palm oil export supplies after the last month's ban has been pushing global vegetable oil prices down," Bagani said. He added that the European new rapeseed harvest and a better-than-expected Canadian canola sowing also contributed to the current fall in prices across edible oils.

Argentina and Brazil are the first and the second largest soybean oil exporters, respectively, in the world. Argentinian shipments for the current 2021-22 marketing year (October-September) are pegged at 5.53 million mt while the Brazilian ones are seen at 1.95 million mt, according to the latest estimates from the US Department of Agriculture.