Supply concerns send Argentina soy oil premiums above Brazil

Argentinian FOB Up River soybean oil cash premiums ended August at unusual higher levels compared to Brazilian FOB Paranaguá's as concerns over local supplies have been mounting amid persistently slow soybean sales by farmers – a scenario that is likely to remain in place for the near term.

According to Platts data from S&P Global Commodity Insights, the FOB Up River soybean oil basis level was assessed Aug. 31 at minus 500 points to the Chicago Board of Trade October (V) futures for October dates, resulting on a flat price of $1,408.76/mt.

The FOB Paranaguá basis for the same month, in turn, was indicated at minus 550 points, with the outright price seen at $1,397.73/mt.

Throughout August, the FOB Up River soybean oil basis for a front-month loading was reported below FOB Paranaguá's only Aug. 30, still, according Platts data. That marked an unusual prices pattern as Argentinian basis levels usually trade at a discount to Brazilian ones due to differences on geographical locations, freight rates and logistical apparatus.

Slow farmer selling

The main reason for this situation has been the poor pace of soybean sales by Argentinian farmers and subsequent impacts on crushing operations, sources told S&P Global Commodity Insights. Because of high export taxes of 33% for soybeans and its sub-products oil and meal, local producers have been focusing on corn trading, for which the export tax is 12%, participants added.

In late July, the Argentinian government announced a new currency exchange rate aiming at speeding soybean farmer selling up through Aug. 31. By accessing the so-called "soybean dollar", producers were able to send 30% of the funds from sales to official dollar rate plus 65% of taxes while the other 70% could be redirected to bills of exchange from the central bank adjusted at the official dollar rate.

The measure had minor effects on heating farmer sales, according to sources. As of Aug. 24, producers had traded 22.70 million mt of soybeans for the current 2021-22 marketing year (April-March), from more than 28 million mt by this time in the prior cycle, the latest Ministry of Agriculture data showed.

As a result, Argentinian soybean crushing has been posting a decline on the year. From January-July, 23.56 million mt of soybeans were crushed by local plants, a 9.2% drop from the same period in 2021, with monthly volumes falling since May, according to official data. For August, it is expected a crushing of around only 2 million mt, a broker said.

Argentinian soybean oil output during January-July 2022 reached 3.42 million mt, 33.7% lower on the year. The country is the world's largest exporter of soybean oil and meal.

Market expectations

For the moment, market participants have been ruling out any significant change on this prices pattern.

Local media reported Aug. 31 that the Argentinian government was considering a new, temporary currency exchange rate to replace the previous "soybean dollar" and attract some farmer selling. But Argentinian traders remained reluctant on whether such a measure would be effective.

In the meantime, trades for nearby loadings have been occurring at FOB Paranaguá. On Aug. 31, there were deals heard for September and October dates, with some sources linking such transactions to hedging operations by exporters amid the uncertainties over Argentinian supplies.