Brazil's FOB soybean oil basis lower than Argentina's on biodiesel cut

Brazilian FOB soybean oil port differentials had an unusual start for December, lower than Argentinian levels, amid a cut in the mandatory mixture of biodiesel into diesel for 2022.

From Nov. 30 to Dec. 7, the Brazilian FOB Paranagua soybean oil premium for January loading was assessed as lower as 30 points compared to Argentina's FOB Up River, according to S&P Global Platts. By this time last year, in contrast, Brazilian FOB Paranagua basis was as higher as 100 points than the reported in Argentina.

The Brazilian FOB Paranagua basis for January shipment was assessed Dec. 7 at plus 480 points to CBOT, from plus 640 points by this time in 2020.

FOB soybean oil port differentials in Brazil are used to having a premium over Argentina's given its geographical location and the fact that most of Brazilian agricultural exports are via sea-based ports, while Argentina relies on the Parana River, with subsequent reduction in loading capacity, to ship more than 80% of its agricultural goods.

But on Nov. 29 the Brazilian council for energy policy, or CNPE, announced that the biodiesel mandate for the whole year of 2022 will be 10%. The 16/2018 regulation, however, previously stated a 13% blend for January and February and a 14% mixture from March 2022.

According to CNPE, such a decision "fits with society's interests and reconciles measures to contain diesel prices." Throughout 2021, the Brazilian government also reduced the required blend from 13% to 12% or 10% amid concerns of inflation impacts.

Soybean oil is the main raw material for biodiesel production in Brazil, so a lower-than-expected mandate for the biofuel could eventually mean a surplus of the edible oil to be redirected towards the export side. That's why such a pressure over nearby FOB Paranagua basis levels has been observed, according to sources.

For the rest of 2022, however, soybean crush operations could possibly decrease given the lower necessity of soybean oil to produce biodiesel, according to market participants.

For the 2021-22 marketing year (January-December), the Brazilian agricultural statistics agency, or CONAB, pegged the country's soybean crush at 47 million mt, with output and exports of soybean oil at 9.51 million mt and 1.10 million mt, respectively.

From January 2022, the Brazilian biodiesel market will move to a direct-sales contracts model, from regulatory auctions that occurred until this year.