Brazil's FOB soybean oil premiums drop below Argentina's

Nearby FOB soybean oil basis levels in Brazil's FOB Paranagua have dropped below those reported in Argentina's FOB Up River for the first time since late May, following an increase in supply on the export front.

On Oct. 7, S&P Global Platts assessed the Brazilian FOB soybean oil basis for November loading at plus 20 points to the Chicago Board of Trade December (Z) contract, while the assessment for Argentina's FOB Up River was plus 50 points.

Because of its geographical position and sea-based ports, Brazil normally sees higher FOB soybean oil premiums compared with those in Argentina, where most of the agricultural products are shipped via the Parana River, which means a reduction in vessels' loading capacity.

The last time Brazil's FOB soybean oil basis levels for front-month loading were lower compared with those in Argentina was May 28, with FOB Paranagua assessed at minus 850 points and FOB Up River at minus 670 points to CBOT that day, according to S&P Global Platts.

Participants attribute the current situation to rising soybean oil volumes redirected to exports in Brazil. That follows lower biodiesel needs for November-December and prices for the biofuel seen as below expectations within an auction to secure enough supply for that period. The mandatory biodiesel blend into diesel will be 10% (B10) in the last two months of the year, from the 13% (B13) initially set.

Fewer incentives to produce biodiesel could eventually lead to more soybean oil being exported as the vegetable oil is the main feedstock for the Brazilian biodiesel industry. An appreciated US dollar against the Brazilian real, which makes dollar-denominated commodities such as soybean oil more expensive for local buyers, is also a factor in reducing biodiesel producers' appetite, sources said.

"Everybody is seeing that the biodiesel is not going well, so they are coming to sell for exports," a Brazilian trader said.

Another trader said auction prices "have improved a little bit as the raw material has been quite expensive. But the lower demand due to B10 avoids further rises in prices."

According to Brazil's oilseeds crushers association, Abiove, the country is expected to produce 9.39 million mt of soybean oil this year, from 9.55 million mt in 2020.