Oct 9 / Pedro Schicchi

Grains, Oilseeds and Livestock Weekly Report - 2023 10 09

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"Brazil's soybean planting season is underway, and while the prospect of a record bean production year is promising, there are complexities to consider.
The country's soybean industry faces a dual challenge: a slower growth rate in domestic demand for soybean meal over the last few years, and a resurgence in biodiesel mandates, leading to increased soybean oil consumption.
The industry is advocating for a return to the B15 biodiesel mandate from the current B12, but the timing and exact details remain uncertain. This presents a dilemma as soybean oil production is intrinsically tied to soybean meal production.
In 2023, Brazil was able to export surplus meal due to a shortage in Argentine meal production. However, with Argentina expected to recover in 2024, the market may not have the same appetite for Brazilian meal."

The scenario for crush next year in Brazil

With the soybean planting starting in Brazil, let us explore the scenario for the crush in the country next year. Certainly, if we expect a record bean production, the industry should have a great year, right? Maybe, but that’s not the whole story. Ample supplies are just one part of the picture. The other is the demand for meal and oil.

Since the African Swine Fever’s (ASF) shock in the global meat market passed, domestic demand for meal has been growing at much slower rates in Brazil. Meanwhile, biodiesel mandates are back on the rise, meaning soy oil consumption is rising.

The industry is asking for the “return” to the B15 from the current B12 for March next year. The 15% biodiesel mandate, despite never having been reached, was supposed to be in place by early 2023 according to a government-set plan back in 2018. The issue is, one can’t have soybean oil, without also obtaining meal. However, if the latter’s consumption is sluggish, what to do with the excess meal produced?

In 2023, Brazil was able to export its excess because of the lack of Argentine meal. However, with an active El Niño, we expect the country to recover. As such, the market may not be as eager for Brazilian meal in 2024.
Figure 1: Soybeans Brazil - Area, Yield and Production (M ha, ton/ha, M ton)

Source: Conab, hEDGEpoint

Figure 2: Brazil Soybean Oil Balance (M ton)

Source: ABIOVE, hEDGEpoint

What can we expect for next year?

The first thing to watch out for is how the mandates are going to progress. As mentioned, the industry is asking for B15. Although government representatives have reinforced the commitment to boosting biodiesel consumption, they have avoided giving precise dates and figures so far. We believe an increase in mandates should come, but perhaps not as high as the segment is asking for.

With 56M ton of soybeans crushed in the year (vs 53.5M estimated in 2023), 11.2M ton of oil and 43M ton of meal would be generated. If we assume B14 throughout the year, we get a relatively tight soy oil balance, which should lead to lower exports.

Taking the USDA’s data into consideration, Argentina’s exportable surplus of soybean oil should grow by around ~1M ton from 2023 to 2024. According to our projections, if we have an increase to B14 in Brazil, exports should decrease by the same amount. In other words, despite a better crop from Argentina, the two countries may have around the same amount of oil to export in total. Granted, USDA’s numbers are conservative, but still, an interesting point to be noted.

Brazilian meal exports also thrived with two poor crops out of Argentina in a row. However, it is hard to expect the same in 2024 with much better soybean production in the latter. The difference with soy oil is that the domestic consumption is not growing much. So, even projecting some growth, there would be a lot more exportable surplus in Brazil adding to Argentina’s greater availability and applying downward pressure in the market. Thus, we believe either the oil does a lot of the work to maintain crush margins attractive in Brazil in 2024, or the meal scenario will keep crushers’ appetite in check.
Figure 3: Brazil Soybean Meal Balance Scenarios (M ton)

Source: ABIOVE, hEDGEpoint

Figure 4: Argentina Soybean Meal and Oil Exportable Surplus* (M ton)

Source: USDA, *Exportable Surplus = Production-Consumption

Weekly Report — Grains and Oilseeds

Written by Pedro Schicchi
Reviewed by Natália Gandolphi


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