Oct 02, 2020

Soybean Oil Prices in Brazil Record High, Carryover Record Low

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

During the month of September, soybean oil prices in Brazil hit their highest point in 18 years due to strong demand both domestically and internationally. The high prices are also the result of very tight supplies of soybeans in Brazil and prices could move even higher before the 2020/21 soybeans become available early in 2021.

Data from the Center for Advanced Studies in Applied Economics (Cepea) indicated that the average soybean oil price during September was R$ 6,318 per ton which was the highest since December of 2002 when it was R$ 7,102 per ton.

There are still at least three months before any of the 2020/21 soybeans will become available and the soybean supply could get even tighter than anticipated because soybean planting is being delayed in central Brazil due to dry weather.

Export demand for Brazilian soybean complex was extremely strong during the first half of 2020 due to the significant devaluation of the Brazilian currency and increased purchases from China. The domestic demand was also very strong due to increased consumption caused by the pandemic and the use of soybean oil in biodiesel production.

Soybean crushers usually generate about 70% of their revenue from soybean meal and 30% from soybean oil. This year, soybean oil is accounting for 40% to 42% of the crusher's revenue, which is the highest since May of 2012. Even though domestic soybean oil prices have increased significantly, it is still very competitive compared to corn oil or sunflower oil.

An additional factor that encouraged increased soybean oil exports has been problems with the crushing industry in neighboring Argentina. Argentina is usually one of the world's largest exporters of soybean meal and soybean oil, but the farmers in Argentina have only sold approximately half of their 2019/20 soybean production and crushers are only running at about 50% capacity. Argentine farmers are holding onto their soybeans as a hedge against inflation and in anticipation of a significant devaluation of the Argentine peso.

Brazil is expected to produce 8.96 million tons of soybean oil in 2020, but with continued strong domestic demand for soybean oil, it is estimated that the soybean oil carryover in Brazil will be down to just 48,000 tons before the new crop becomes available. This would be the lowest on record and only a fraction of last year's carryover of 299,000 tons.