South American soybean oil FOB basis drops to all-time lows

Port differentials for South American soybean oil prompt cargoes dropped to historical lows Aug. 17 amid a lack of fresh export demand and increased selling pressure.

According to S&P Global Commodity Insights data, the Platts-assessed Brazilian FOB Paranaguá basis for September was at minus 2,480 points to the Chicago Board of Trade September (U) contract Aug. 17, marking a record-low for a front-month loading.

In Argentina, which is usually the world’s largest soybean oil exporter, the FOB Up River basis for September reached minus 2,380 points to the CBOT U contract Aug. 17, also the lowest level since Platts started publishing the FOB soybean oil assessment for Argentina and Brazil in March 2019 and March 2020, respectively.

Market participants attributed the current 100-point premium for FOB Up River over FOB Paranaguá to severe crop losses and slow farmer selling this year in Argentina.

In contrast, the basis levels for spot-loading cargoes in Argentina and Brazil were around minus 600 points to CBOT futures during the same period last year.

“Demand isn’t coming, and there is still [soybean] oil on the nearby,” a source said, referring to South American markets.

Indeed, import margins in India, the global top buyer of edible oils, have been unattractive for soybean oil purchases, participants said. At the same time, China has seen record portside stocks, they added.

Besides, prompt soybean oil supplies from Argentina and Brazil have been costing more than $100/mt compared with sunflower oil FOB Black Sea volumes, reducing their attractiveness for destinations. In comparison to crude palm oil FOB Indonesia sport cargoes, they have been $70-$90/mt above.

Selling pressure
While export demand has been quiet, the selling of soybean oil needs has been mounting in South America, especially in Brazil, where crush margins have been deteriorating, according to sources.

On Aug. 17, Platts assessed the Brazilian soybean FOB Paranaguá crush spread at $23.57/mt, nearly 80% lower from a peak seen in mid-February this year.

In the meantime, Brazilian biodiesel producers and fuel distributors are negotiating bi-monthly term contracts to supply the September-October biodiesel demand, which has a mandatory blending of 12% into diesel.

The lack of export demand could potentially increase sellers’ interest to further reduce the named fee, usually a discount applied to the price formulas for term contracts. Soybean oil is the main feedstock for the Brazilian biodiesel industry.

“Both refined and degummed [soybean] oil for biodiesel have already been traded many times below FOB Paranaguá, as exports have not had sufficient demand,” a Brazil-based trader said.

Brazil is likely to produce 10.21 million mt and export 2.60 million mt of soybean oil in the current marketing year 2022-23 (October-September), according to US Department of Agriculture estimates. For Argentina, USDA expects an output of 6 million mt and shipments of 4.15 million mt in MY 2022-23.

Tags: soybean oil, prices