Argentina soybean meal premiums rise to record high on supply concerns

Argentina's soybean meal cash basis levels rose to a record high Jan. 9 amid supply uncertainties due to weather-related concerns and slow sales by farmers, while the FOB Up River spread to Brazil's FOB Paranguá reached a record premium earlier in the month.

Platts, part of S&P Global Commodity Insights, assessed the FOB Up River premium for February dates at plus $60/st to Chicago Board of Trade futures Jan. 9, a record for front-month loading cargoes. The levels were at minus $1/st during the same period in 2022.

The FOB Up River assessment Jan. 9 was $25/st higher than the FOB Paranaguá basis for the same month on the day, according to S&P Global data. The largest spread in favor of Argentina was seen Jan. 5, when FOB Up River posted a $28/st premium over FOB Paranaguá.

Argentina -- the world's largest exporter of soybean meal -- has been facing weather-related disruptions to its 2022-23 soybean crop, the planting of which is underway.

Due to hot, dry conditions in key growing areas, the seeding pace was at 81.2% of the expected acreage as of Jan. 4, five percentage points slower on the year and 11 percentage points behind the five-year average for the period, according to the latest data from the Buenos Aires Grain Exchange, or BAGE.

The unfavorable weather is linked to La Niña conditions that are at play for the third consecutive year. As a result, some market sources doubt that the nearly 50 million mt expected by the US Department of Agriculture for Argentina's 2022-23 soybean crop will be achievable. Some sources put the potential output at 5 million mt below that level or even lower.

The record premiums for Argentina's soybean meal are unusual as Brazil is used to trading higher than Argentina due to geographical and logistical factors. Most of Argentinian soybean meal supplies are shipped overseas through the Paraná river waterway, which limits the volumes vessels can carry, for example.

Bullish sentiment

Beyond an anticipated soybean crop failure in Argentina, other factors have supported the FOB Up River soybean meal premiums, market sources said.

Soybean farmer sales in the country were said to have weakened again after seeing an increase in December amid the second round of the so-called "soybean dollar," a special forex rate program applied to exporters to stimulate farmer selling and increase the central bank's reserves.

Around 6 million mt of soybeans were reported traded or priced in Argentina under the program in December 2022 after a similarly successful measure introduced by the government in September. Farmers have now refrained from selling expecting a relaunch of the program.

Market participants also cited low soybean meal inventories and continued poor crush margins as bullish drivers for FOB Up River basis levels.

Argentina is on track to produce 31 million mt of soybean meal in the 2022-23 marketing year (October-September), with exports seen at 27.60 million mt, according to the USDA. The USDA is expected to review these estimates downward in its World Agriculture Supply and Demand Estimates report due to be released Jan. 12.