South America: FOB Soybean oil prices in South America have taken a sharp nosedive, dropping to the lowest point since more than two years ago. This is due to a combination of weak demand, tumbling Chicago Board of Trade futures and narrowing port differentials. So far in 2023, FOB Soybean oil prices have dropped by 20%, with CBOT futures experiencing an even steeper reduction of 15%. Though Argentina has faced serious crop losses as a result of drought conditions, market sentiment has been largely affected by Brazil's record-breaking harvest, weakening global energy markets and wavering demand from primary buyers including China and India.

South American prompt premiums have been unusually low, with the FOB Up River and FOB Paranagua May basis assessed at a minus 980 points to the CBOT May (K) contract on March 22. Last year, these premiums were 90 points and 70 points respectively. This is largely due to the fallout of the Russia-Ukraine war in terms of global edible oil markets. The recently decreed Brazilian biodiesel mandate has heavily contributed to this current situation where Soybean oil prices remain low and basis levels remain under pressure.

The government of the country has announced that they will be implementing a mandatory blend of 12% biodiesel into diesel starting in April, with gradual increases until the blend reaches 15% by 2026. This news has caused frustration among participants in the biodiesel industry who had anticipated an earlier usage of the B15 blend.

Following the decision to implement a biodiesel mandate, the Brazilian oilseeds crushers association Above anticipated that domestic Soybean oil consumption would rise to 8.95 million MT in 2022, up from their previous forecast of 9.15 million MT. This is likely to increase available supplies for export, with shipments pegged at 2.15 million MT for this year, an increase from the 1.75 million MT predicted previously.

Soybean oil is the key ingredient used by Brazil's biodiesel sector.