COMMODITIES 2025: Brazil’s feedstocks market juggles record crop, rising biodiesel blend

Brazil's biodiesel producers fear higher soybean oil prices in the second half of the year, despite a record soybean harvest of 175 million mt for the 2024-25 cycle, a 14.4% increase from the previous crop. This is due to the potential for a trade war between the US and China, coupled with the rising biofuel mandate, sources said.

Players believe that imports may become economically viable for some regions of the country. Furthermore, reduced cattle slaughter is raising concerns in the sector, as beef tallow exports are expected to grow in 2025.

President Donald Trump's promise to impose an additional 10% tariff on Chinese imports, including used cooking oil, would prompt China to purchase more soybeans from Brazil, despite its high stock levels and signs of slowing domestic demand.

Brazil's soybean exports are projected to total 98.5 million mt this marketing year, with 70% of that destined for China. In 2025, shipments of the oilseed are expected to reach 104 million mt, according to S&P Global Commodity Insights data.

"The soybean supply outlook is positive, with yields near record levels. The country has built additional crushing capacity, and we forecast the 2024-25 crush at 57.5 million mt, up 2 million mt from the last season, with further upside potential," said Gabriel Faleiros, principal research analyst for Latam Agribusiness at Commodity Insights.

New plants and expansions will raise crushing capacity to 73 million mt. Soybean oil, which accounts for the majority of biodiesel production input, will see increased demand as Brazil's National Energy Policy Council raises the biodiesel mandate to 15% from 14% on March 1, 2025.

Commodity Insights expects Brazilian soybean oil production to rise 2.9% year on year to 11.6 million mt in the 2024-25 marketing year. The biodiesel industry is forecasted to consume 6.4 million mt of soybean oil in 2025, up from 5.5 million mt in 2024.

Despite the larger soybean crop, players imported soybean oil from neighboring countries in the second half of the year due to the record waterborne price of soybean oil, higher exports from Mato Grosso in September and a loss of 2.7 million mt of soybeans from flooding in Rio Grande do Sul.

Higher demand from the biodiesel sector — driven by the biodiesel mandate rising to 14% from 12% in March — supported the Platts FOB Paranaguá price in 2024. It reached $1,193.5/mt on Nov. 11, the highest since Jan. 13, 2023.

Crushers and biodiesel plants are considering importing soybean oil and beef tallow from the Mercosur trade bloc if demand spikes in the second half of 2025. Producers, particularly from the southern region, have already been importing feedstock to avoid price increases since September.

Tightening tallow supply

Commodity Insights expects Brazil's beef tallow supply to drop 6.7% in 2025 to 1.27 million mt. The biodiesel sector competes for the byproduct with US renewable diesel and sustainable aviation fuel plants, as well as the hygiene, chemicals and animal feed sectors.

While slaughter volumes are likely to remain elevated early in the year, beef production is expected to fall 5%, driven by a gradual decline in female participation and the availability of finished cattle.

Cattle production typically expands for three to four years, then contracts for three to four years. In 2024, the industry reached the peak of the fourth year of growth in slaughter rates.

"In periods of lower profitability, cattle farmers tend to increase cow slaughter and reduce animal replacement, aiming to reduce herd size and support future cattle prices," Faleiros said.

While Tallow output fell 10.4% in 2024 to 1.36 million mt, according to Commodity Insights data, prices have risen due to strong export demand and competition with soybean oil at Paranaguá port.

Commodity Insights predicts tallow exports are on track to hit a record 320,000 mt this year, with projections to grow by 25%, reaching 400,000 mt in 2025.

Surging UCO demand

Demand for Brazilian UCO has surged recently, particularly from US and European buyers. Shipments have been flowing from Paranaguá port to the Amsterdam-Rotterdam-Antwerp region since mid-year. Players already have a structure at the port of Santos, in São Paulo, to load frying oil.

The Brazilian government has taken steps to promote the use of waste feedstocks in biodiesel production. On Dec. 10, the National Energy Policy Council approved a new directive setting a minimum target for waste feedstocks in advanced biofuel production. The target will be determined by the Ministry of Energy and the Ministry of Environment, in line with the Fuels of the Future Law, effective since Oct. 8.

US waste feedstock outlook

The US waste feedstock market, which uses tallow and UCO to produce low-carbon fuels, remains uncertain amid rising demand, limited supply and evolving regulations.

The definition of tax incentives under the 45Z Clean Fuel Production Credit designed to encourage lower-carbon intensity fuel will be key to the market. It is set to begin in January, contingent on approval from the Republican-controlled Congress.

The 45Z credit would offer up to $1.75/gal for SAF and $1/gal for other transportation fuels, compared with the $1/gal that biodiesel blenders receive under an existing blender's credit.