For more biodiesel in Brazil, soybean oil decoupled from grains and earned nearly $20 a ton in Chicago

Contrary to what was happening with the rest of the chicago marketthe oils showed an upward behavior on Tuesday, after from the environment of the president-elect of Brazil, Luiz Inacio Lula da Silva pointed out that when he assumes the presidency of Brazil, on January 1, 2023, it would rise from 10% to 15% the minimum cut of biodiesel.

In this way, the soy oil it earned US$18.74 per ton and traded at US$1,575.84 in the January contract, despite the fact that soybeans fell US$2.66 and settled at US$525.26 in the same position.

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Meanwhile, cereals also had a negative performance. The wheat it fell US$2.48 per ton and was valued at US$291.20 in the December contract. While corn lost US$0.79 and closed at US$258.85

in dialogue with TNthe head of Research at the Zeni brokerage, Eugenio Irazuegui, stated: “The measure confirmed in Brazil refers to an extension of the current mandatory cut, of 10% for biodiesel, until March 31. In any case, legislators from the party led by the president-elect anticipated that, once in office, would raise the minimum cut to 15%, in order to promote the biofuels industry”, he claimed.

In this regard, he recalled that soybean planting is being carried out in that nation, corresponding to the 2022/23 campaign, estimating progress close to 80%. “If there were no difficulties, Brazil is on track to allocate a new record of planted area”, he commented.

Chicago market closing. (Source: Zeni)

The executive director of the Argentine Biofuels and Hydrogen Association, Claudio Molina, explained: “In Brazil, a few years ago a program was approved, the B15, to arrive next year with a cut of 15% of biodiesel in diesel”.

But that initiative, as he pointed out, was delayed after the management of Jair Bolsonaro. It went from 13 to 10%. “For this reason, what the new government would be doing, if this announcement materializes, is to resume that program. This would have a significant impact on the consumption of oils to be processed locally, which would also have an impact on the exportable supply of crude soybean oil from Brazil”.

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However, the expert stated that It remains to be seen if that 5% rise in the cut finally materializes, Or if that objective is reached from intermediate steps during Lula’s administration.

“If they want to comply with the program, they have to reach 15%, but we have to see how they implement it, because for example the state oil company Petrobras You can argue that this would make the price of diesel more expensive and that is why it does not jump directly from 10% to 15%”, he evaluated.

Closing of the local market. (Source: Zeni)
Closing of the local market. (Source: Zeni)

Other bullish factors

Meanwhile, Molina stated that it must be taken into account that the international oil market is “very volatile”, because the supply is “very fair” in relation to the demand.

“In recent years, there have been imperfections with the supply of palm oil. Especially if one considers that Indonesia intensified its use of biodiesel in the domestic marketwhich reduces a lot of supply to the market”, he commented.

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About that, he added: “China is exporting used oil biodiesel to the European Union. But when one analyzes the balance sheets, the only way it closes is if it is flushed with palm oil.”

All this, added to other “imperfections” in the supply of palm oil from Thailand and Malaysia, which impacts the price of the soybean derivative. “Any movement generates important price variations,” he asserted.

Finally, among the bullish aspects, he also commented that it should be taken into account that in USA there is a “very important process of converting oil into biodiesel HVO (Hydrotreated Vegetable Oil)which this year will consume more than the traditional one, which reduces the supply of soybean oil in the international market”.

For more biodiesel in Brazil, soybean oil decoupled from grains and earned nearly $20 a ton in Chicago