Oct 08, 2018

Soy Crush Margins in Brazil could turn Negative Fourth Quarter

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

While Brazilian soybean farmers are pleased with the strong domestic soybean prices, this is not good news for soybean crushers or livestock producers in southern Brazil. According to the Center for Advanced Studies for Applied Economics (Cepea), soybean crush margins could turn negative for Brazilian crushers during the fourth quarter of 2018.

The strong demand from China for Brazilian soybeans has led to the highest domestic soybean prices since mid-2016. In recent weeks, the price for available soybean supplies at the Port of Paranagua in southern Brazil have been in the range of R$ 95.00 to R$ 97.00 per sack (approximately $10.80 to $11.00 per bushel). While at the same time, the prices of soybeans on the Chicago Board of Trade have been at their lowest levels in ten years.

As a result, Cepea is estimating that crush margins at the Port of Paranagua in southern Brazil will be negative $5.16 per ton for the October contract, negative $2.48 per ton for the November contract, and negative $9.27 per ton for the December contract.

This disparity in prices is the result of the trade dispute between the United States and China. The Chines government has stated their intension to reduce their soybean imports by 10 million tons from previous estimates. It is widely believed that they will try to minimize their purchase of U.S. soybeans as part of their negotiation strategy concerning tariffs. It remains an open question if they will succeed in not purchasing U.S. soybeans while they wait for new crop supplies of soybeans to become available from Brazil starting in late December or early January.

Strong domestic soybean prices in Brazil are not only impacting crushers, they are also bad news for livestock producers in southern Brazil. High soybean meal prices, coupled with strong domestic corn prices, are putting a squeeze on poultry and hog producer's margins.