Argentina-Brazil soybean meal basis spread widens to record

The Argentina-Brazil FOB soybean meal basis spread widened to a record as weakening export demand and a shallow Parana River put pressure on Argentina's premiums for nearby loadings.

The spread reached $20/st July 6-7, with the basis for August loading in Argentina's Up River cargo market assessed at parity July 6 and at plus $1/st July 7 to the correspondent Chicago Board of Trade contract. In Brazil's Paranagua paper market, the basis for the same month was assessed at plus $20/st July 6 and plus $21/st July 7, S&P Global Platts data showed.

Argentina's FOB Up River cargo market usually trades at lower basis levels compared to Brazil's Paranagua paper market because of logistical limitations. Around 80% of the country's agricultural products are exported via Rosario, which larger vessels can't access since it is a hydro-port in the Parana River. Brazil, on the other hand, ships most of its goods from sea-based terminals.

So far in 2021, the average FOB soybean meal basis spread has been around $6/st, while by this time last year it was narrower, at $1/st, with the Up River basis at minus $1/st and the Paranagua basis at parity to CBOT, according to Platts data.

The current wider difference hints at difficulties faced by Argentinian exporters, putting pressure on local premiums.

Decreasing Parana River water levels at Rosario was a concern, sources said, with shallow waters expected until the end of the year, when rainfall is due to return to the river's basin in Brazil.

On June 22, Parana River's level at Rosario was around 40 cm above sea level, from a historical average of 3.5 meters for the period, Argentina's national water agency INA said. That means higher shipping costs – and a lower basis – for exports, which is required to reduce loadings to meet navigation conditions on that key waterway.

According to Platts Analytics, vessels have been reducing cargoes by as much as 5,500-7,000 mt to pass through channels. A large vessel at Rosario usually hauls up to 50,000 mt. Also, vessels were heard completing loadings at Brazilian ports, which supported the FOB Paranagua basis, sources said.

The recent lack of export demand in Argentina, the world's largest soybean meal exporter, was another factor pressuring the FOB Up River basis, as the South American country relies on external sales to drain out its production. Brazil, on the other hand, has larger pork, poultry and beef industries, which demand large volumes of local output for animal feed.

Argentina's soybean meal exports in the 2020-21 season (April-March) are pegged at 28.25 million mt, or nearly 90% of the country's production, according to the latest US Department of Agriculture estimates. For Brazil, the USDA forecasts shipments of 16.50 million mt, or 45.5% of the local output.