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Latin American soybean oil basis drop to historic lows on poor demand, rising CBOT

Energia | Energy Transition

Platts Global Integrated Energy Model

Latin American soybean oil basis drop to historic lows on poor demand, rising CBOT

FOB basis soybean oil in South America has plunged to record lows on surging Chicago Board of Trade futures and lackluster export demand in Argentina and Brazil, with outright prices in the two producers still at historical high levels.

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Basis for July loading in the Argentinian Up River paper market was reported June 9 at minus 1,500 points to the correspondent CBOT contract, down from plus 150 points by the same date in 2020. The June 9 assessment marked a new low in S&P Global Platts series for FOB basis Up River soybean oil.

Brazil's Paranagua saw similar movement, with basis for July reported June 9 at minus 1,400 points to Chicago, the lowest in Platts' assessment series, compared with plus 190 points a year ago.

Such a fall shadows a lack of fresh export demand, according to participants. In early May, purchases from Asian buyers, especially from China and India, contributed to lift FOB basis South American soybean oil to as high as minus 300 points to CBOT, but that appetite has decreased as the international soybean oil prices have rocketed to historical highs.

On June 7, the CBOT front-month contract touched 73.74 cents/lb during the session, the highest-ever level. So far in 2021, CBOT soybean oil has already gone up by more than 70% amid expected tight global stocks and prospects of growing biofuel demand in the US as that country recovers from pandemic-related economic impacts and sharply increased driving, with soybean oil used in biodiesel production.

The US Department of Agriculture forecasts that 12 billion bushels of soybean oil will be used for biofuels production in 2021-22, from 9.50 billion bushels in 2020-21.

Back in Brazil, FOB basis soybean oil has been pressured down by a cut in the government's May-August biodiesel mandate to 10%, from its initial 13%, in response to high domestic soybean oil prices.

A lower biodiesel blend into diesel could eventually mean higher supplies of soybean oil to be potentially exported.

Despite lower FOB basis, outright prices in Argentina and Brazil remain at high levels, support by the current CBOT futures' levels.

On June 9, the Argentinian FOB Up River soybean oil outright price for July was assessed at $1,247.60/mt, up by 91.18% year on year, while the Brazilian FOB Paranagua climbed by 91.97% in the same comparison to $1,269.64/mt.