New flood of soybean oil not expected to affect prices

Increased soybean oil exports from Argentina may not have the normally negative effect on prices because the United States has been shipping less of the product due its booming biofuel sector.  |  Reuters/ Mike Blake photo

Argentine exporters expected to make more product available now that government has cut country’s biodiesel mandate

Argentina is slashing its biodiesel mandate and that is going to put a lot more soybean oil on the export market, say analysts.

The government has voted to cut the mandate in half to five percent from 10 percent.

The country had been consuming about one million tonnes of soybean-based biodiesel a year. That volume will be cut in half.

“The oil that would have been allocated for biodiesel is now going to make it out onto the international export market,” said Mac Marshall, vice-president of market intelligence with the United States Soybean Export Council.

He estimates Argentina’s policy move will result in an additional 500,000 to 700,000 tonnes of soybean oil hitting the market.

The country is already the world’s largest exporter of the commodity, shipping out an estimated 6.25 million tonnes of oil in 2020-21.

Marshall said that would normally result in downward pressure on soybean oil prices. Canola values are closely tied to soybean oil prices.

But there is a mitigating factor. The United States has exported 660,000 tonnes of soybean oil year-to-date. That is down from more than one million tonnes the same time last year.

The burgeoning U.S. renewable diesel sector is suddenly consuming large volumes of the product, reducing available supplies for export markets.

So in essence, the anticipated surge in Argentina’s soybean oil exports will be largely offset by the reduction in U.S. exports.

That is why U.S. soybean oil prices haven’t reacted to the news out of Argentina.

Prices dipped in June but that was in response to a U.S. Supreme Court decision siding with small refiners that had been granted blending requirement exemptions from the Environmental Protection Agency.

Futures prices have since partially rebounded and appear to be undaunted by Argentina’s recent biodiesel mandate reduction.

John Jansen, vice-president of strategic partnerships with the United Soybean Board, agrees with Marshall’s assessment that the additional export volumes out of Argentina should not distort U.S. soybean oil prices and consequently Canadian canola prices.

“I don’t believe there will be an impact as the likely destination for the additional material is India,” he said in an email.

“With the cost of importing Argentinian material at a tariff rate of 19.1 percent, I don’t see volume moving this way.”

He noted that it would be “self-defeating” for the U.S. renewable diesel sector to claim it is being sustainable while importing soybean oil from Argentina.

Marshall said the bigger immediate concern for the Canadian canola sector is going to be how it services overseas customers given the likelihood of harvesting a short crop.

According to some estimates, there could be a 10-bushel-per-acre drop in average yields in Canada, resulting in a five million tonne shortfall of the crop.

How will the remaining 15 million tonnes be allocated?

“I imagine it’s going to be something where it’s consumed more domestically and what goes out into the export channels gets pulled back,” said Marshall.

China may be a logical place to curtail shipments. It has been Canada’s top customer in 2020-21 but the once red-hot market for many of the world’s oilseeds has been cooling off of late.

Shipments of Brazilian soybeans to China have slowed considerably in the last couple of weeks. That is because Chinese crush margins were negative in June and the first half of July, said Marshall.

“Margins are really weak relative to where they were maybe six months ago.”

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