Latam soybean oil basis jump on steady demand, logistic issues, biodiesel blending

Argentina and Brazil's FOB soybean oil basis levels rose to more than two-month highs, amid steady demand for exports and local biodiesel blending as well as transportation bottlenecks in Paraná river.

S&P Global Platts on Aug. 5 assessed the Argentinian FOB Up River soybean oil basis for September shipment at minus 500 points to the correspondent Chicago Board of Trade contract. It was the highest level for front-month loading since minus 500 points on May 27 and far above minus 1,500 points June 9-10.

The Brazilian FOB Paranagua basis, which reached minus 370 points to CBOT Aug. 5, also touched the highest since minus 300 points on May 11. This compared with the record low of minus 1,400 points on June 9-10.

Multiple factors were contributing to the firmness in Argentina and Brazil markets, even with CBOT futures still at a high level of above 60 cents/lb.

In Argentina, a resurgence in export demand for soybean oil and biodiesel, even though at a slow pace, was seen as supportive. This came while traders rearrange their upcoming commitments amid shallowness in the Paraná river, a vital artery for the country's agricultural trade flow.

Since the beginning of July, more than ten trades were confirmed in the Up River paper market for loadings between August and Q4 2021.

The upward movement in Argentina might indicate an attempt to boost soybean sales by farmers as well, a trader said. But the pace of selling remained tepid, dampening the outlook for local crushing.

Argentinian farmers sold 493,100 mt of soybeans in the week to July 28, down by 34% on the week. This brought the total soybeans traded so far in the 2020-21 marketing year (April-March) to 26.3 million mt, compared with 28.5 million mt by this time last season.

In Brazil, the increase in FOB Paranagua basis levels has been shadowing the movement in Argentina and firmer domestic market. The market has seen an average premium of 125 points to Up River in the past month as participants face the possibility of ships completing loadings in Brazilian sea-based ports due to further difficulties to navigate on the Parana River.

Sources also mentioned Brazil's government decision to raise the amount of biodiesel blended into diesel in September-October to 12%, from 10% during May-August, as another supportive fundamental. The initially set blend for the whole period was 13%, but it was cut due to high internal soybean oil prices -- the main raw material for the biofuel production in the country.

While still lower than the stipulated 13% mandate, the 12% blend will mean higher soybean oil needs to fulfill the biodiesel commitments for September-October, sources said. This will eventually reduce the volume available for exports, providing subsequent support for FOB Paranagua basis levels, they added. The public auction to secure biodiesel supply for those two months is expected to occur in the coming days.