South American soybean oil prices drop to more than two-year low

FOB soybean oil cash prices in South American markets have broken the $1,000/mt mark and plunged to a more than two-year low amid falling Chicago Board of Trade futures, thin demand and weakening port differentials.

Platts, part of S&P Global Commodity Insights, assessed both Argentinian FOB Up River and Brazilian FOB Paranaguá outright prices at $988.55/mt for May dates on March 22, the lowest level for a front-month loading since Jan. 27, 2021.

So far in 2023, FOB soybean oil prices in both origins have dropped by nearly 20%, while CBOT futures have also been posting a bearish stance, losing 15%.

Despite severe drought-related crop losses in Argentina, the historical world's largest exporter of soybean oil, traders' attentions have been on a record crop in Brazil, falling energy markets, broad macroeconomic jitters and slow demand from key destinations, mainly China and India.

"In my understanding, India [...] has very high inventories because it took advantage of the March window for tax-free imports," a Brazil-based trader said, referring to the 2 million mt duty-free quota for soybean oil purchases that was expected to end this month.

"From April onwards, India is likely to be slower [on fresh imports]," the trader added.

In this context, South American prompt premiums have been at low levels, with the May basis for FOB Up River and FOB Paranaguá assessed March 22 at minus 980 points to the CBOT May (K) contract, according to S&P Global data. By this time last year, for example, they were at plus 90 points and plus 70 points, respectively, as the global edible oil market was digesting the initial consequences of the Russia-Ukraine war.

A recent decision about the Brazilian biodiesel mandate was also linked to the current pressure over soybean oil prices and basis levels.

The country's government has determined a mandatory blend of 12% into diesel as from April, compared to 10% currently, with gradual increases until 15% by 2026. That has partially frustrated the biodiesel industry that was foreseen an earlier usage of the so-called B15, participants commented.

Following such a biodiesel mandate decision, the Brazilian oilseeds crushers association Abiove predicted March 22 that domestic soybean oil consumption will reach 8.95 million mt in 2022, compared with 9.15 million mt previously expected. As a result, available supplies for exports were likely to increase, with shipments pegged at 2.15 million mt for this year, from 1.75 million mt considered on a previous forecast.

Soybean oil is the main feedstock for the Brazilian biodiesel industry.