The increase in the blend of biodiesel in Brazil's diesel from March 2024, from 12% to 14%, will ensure a considerable additional demand of around 5 million tons of soybeans for the production of the main raw material of the renewable fuel, the soybean oil, but there are factors limiting the impact on prices, at least for now, according to experts.
In a scenario of a failure in the Brazilian soybean harvest, which accounts for around 70% of biofuel raw material in Brazil, a firmer market could be imagined, if production deteriorates further due to dry weather.
However, the industry considers a smaller export of soy oil of Brazil next year, with part of the previously exported product being redirected to meet the internal demand of the biofuel industry. This limits demand for the grain and partially offsets the increase in processing expected by the greater volume of biofuel produced.
Furthermore, the market is counting on a full harvest in 2024 in Argentina, traditionally the largest global exporter of oilseed derivatives (bran and oil), which in 2023 was the second largest buyer of Brazilian soybeans due to production devastated by drought.
Impacts of the Argentine harvest and biodiesel policies in Brazil
With the displacement of oil previously exported by Brazil to the domestic market, additional soybean processing in 2024 should therefore be between 1 million and 2 million tons, in the assessment of Grains and Oilseeds analyst at hEDGEpoint Global Markets, Pedro Schicchi , already considering the increase in the biodiesel mixture.
These volumes of up to 2 million tons are relatively small, compared to the size of the Brazilian harvest, although in 2023/24 it may be slightly below the record levels of 2022/23, which vary around 155-160 million tons , depending on the source.
“Disregarding stocks, this gives us an exportable surplus approximately 2 million tons smaller (of soybeans), which does not seem so bullish, at first,” said Schicchi, commenting on the developments of the government’s decision this week to increase the mixture of biodiesel for 14%.
This reduction in exports could result in shipments of just over 99 million tons of soybeans in 2024, below the country's record of more than 101 million expected for 2023.
Specialist José Roberto Gomes commented on the greater mixture of biodiesel in diesel, information still being analyzed by the market. Some traders expected as much as 15%.
“The market must be doing the math... even more so in a scenario of soybean production below what was initially expected (in Brazil). Soybean oil premiums are currently stable. Support is expected in FOB Paranaguá premiums for the second quarter, but with possible reductions in exports.
Argentina
In 2024, with a large soybean harvest, Argentina should occupy part of Brazil's global oil market.
Schicchi predicts a reduction in Brazil's oil exports of 0.8-1.0 million tons, increasing domestic demand by 0.2-0.4 million compared to 2023.
The Abiove association, this Friday, projected that Brazil's oil exports will reduce to 1.45 million tons next year.
In 2022, Brazil exported 2.6 million tons of soybean oil, with a forecast of 2.35 million in 2023, above the ten-year average. Increase due to Indian demand and reduction in Ukrainian and Argentine shipments, affected by war and climate.
Gomes, from S&P Global, said that the 2024 market scenario will also depend, in part, on Argentina. “The abundant harvest could put pressure on FOB Up River soybean oil premiums and limit the increase in port differentials in Brazil,” he stated.
“The Argentine government, under President Javier Milei, plans to increase oil and meal export taxes to 33%, from 31%,” commented Gomes.
Specialist Ana Luiza Lodi, from StoneX, said that the volume of the soybean crop, to be harvested in weeks, will influence exports. As for oil, she agreed that the greater mixture of biodiesel will reduce exports.
“Lower soybean production could reduce exports,” said Lodi. StoneX will update the data in January.
Source: Roberto Samora | Notícias Agrícolas
