Are Argentina Soybean Crush Exports at Risk?

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May 5, 2021 | Agricultural Markets

Reading time: 8 minutes

Argentina faced an arid period due to La Nina affecting all crops, particularly Soybean, resulting in the lowest yield and production since 2017. As a result, crushed Soybean products—which represent the large majority of Soybean exports out of Argentina— face difficulties meeting the demand, bolstered by the rebound growth from China. Consequently, the Argentinian crushing industry, already hampered by the Covid-19 pandemic in 2020, is in an even worse position in 2021. Considering the local cash Soybean crush margins, cash prices, and export pipelines – how is the Argentinian crushing industry coping in 2021?

Read also: How Is the Brazil Soybean Cash Market Structured during the 2021 Harvest?

Rising Soybean Cash Prices Burden Crush Margins

Since the Soybean production is lower than in previous years and given the current bull market, Soybean cash prices increase, which reduces the margins derived from crushing the beans locally.

Figure 1: Argentina Soybean, Soybean Oil, and Soybean Meal Spot Cash Prices
Between Nov 2020 and Apr 2021

Based on Figure 1, Soybean cash prices increased throughout Q4 2020 up until now in April 2021. Additionally, Soybean Oil cash prices are soaring high as the global demand for Vegoils has drastically increased. Simultaneously, supply struggles to follow due to limited bean stocks, industry bottlenecks, increased taxes, and strikes. Furthermore, these factors have decreased the incentive to trade Soybean Meal, causing its prices to tank after February 2021.

Figure 2: Argentina Cash Soybean Crush Margin

In the end, the estimated cash crush margin, displayed in Figure 2, relies on the relationship between Soybean Meal and Soybean prices as the primary driver in crush margin evolution

Crush Margin Calculation

Margin = [Soybean Meal Prices*0.8 +Soybean Oil Prices*0.183] – Soybean Prices

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With Soybean cash prices still on the rise and Soybean Meal cash prices painfully recovering, the crush margin is bound to decrease and potentially even fall below USD 0. 

In comparison, Brazil’s Soybean cash prices had a much steeper increase and are around 20 USD/mt higher than Argentina Soybean prices due to high demand, better crop quality – thanks to more favorable weather conditions – and a different export strategy. Indeed Brazil mainly exports Soybean to be crushed at import locations, unlike Argentina, which almost exclusively crushes Soybean domestically. These factors explain why the Brazil Soybean industry thrives in this bull market while Argentina struggles with thin crush margins.

Read also: How Will Coronavirus Impact Soybean Meal Prices?

How are Export Pipelines for Argentina Soybean Adapting to the Supply Changes?

Due to the strong demand for Vegoils globally, Argentina has no choice but to keep crushing despite decreasing cash crush margins. So far, exports continue shipping to their destinations thanks to a large carryover from the previous crops. However, with the price increase of Vegoils and the diminishing incentive to trade Argentina Meal, importing countries could shift to other Soybean origins, such as Brazil.

Figure 3: Argentina Soybean Export Volume (Oil & Meal Combined)
Between Apr 2020 and Apr 2021

As per Figure 3, the total year-on-year Soybean products export volumes in April increased almost threefold from around 1.6 Mmt to 4.6 Mmt.

Figure 4: Argentina Soybean total Import Volume by Country (Meal & Oil)
Between Nov 2020 and Apr 2021

Ninety-nine percent of Argentina Soybean Meal Exports are split across 50 countries, with Vietnam being the leading importer, representing about 14% of the total volume. Soybean Oil, however, goes mainly to India, as it absorbs 49% of Argentinian Soyoil exports.

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Figure 5: Vietnam Soybean Meal Import Volumes Between Nov 2020 and Apr 2021

Because of the increasing risk of Argentinian Soybean Meal supply shortage,  Vietnam – like other importing countries – has started to diversify its Soybean Meal sources. As such, in April 2021, Brazil represented 34% of all Vietnam Soybean Meal imports, which could increase even more in the coming months and threaten a critical part of  Argentina’s main Soybean exports.

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Figure 6: Argentina Soybean Meal CFR Vietnam Prices Between May and Sep 2021

CFR prices in Figure 6 show that Argentina has the best freight execution and cash prices combination for Vietnam Soybean Meal imports. Which consolidates Argentina’s position as the most competitive supplier of Soybean Meal imports to Vietnam. Therefore, there will probably be a continuous demand for Argentina’s main Soybean export product, as long as Argentina maintains its supply levels.

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Argentina Crush in a Nutshell

Argentina Soybean crops suffered from the drought during the critical growth period. Consequently, cash prices have increased rapidly due to a lower 20/21 production. Demand for Vegoils has increased globally, driving Soybean Oil prices to record highs. Moreover, the Soybean Meal cash prices have tanked as the interest to trade the product diminished. Which led crush margins to significantly reduce over the last few months, potentially reaching negative values in the coming months.

Despite these challenging conditions, Vietnam and India – number one importers of Argentinian Soymeal & Soyoil respectively – keep relying on Argentina as a source, at least for the time being.  Nonetheless, Vietnam has started to import from other origins increasingly, e.g., Brazil occupies a critical part of Vietnam’s Soybean Meal imports in April 2021, putting Argentina’s Soybean export pipeline at risk in the long run. However, Argentina CFR quotes to Vietnam currently remain the most competitive on the market

Thus far, Argentina seems to manage to meet global demand for Soybean products. However, two factors could threaten the entire Argentina Soybean export market in the coming months:

  1. If crush margins fall under USD 0, crushers might decide to stop their activities to cut their losses, though, given the current situation, some might choose to carry on crushing, even at a loss.
  2. The carryover supply is bound to run out at some point. When it runs out, Argentina will struggle to meet the demand and might even lose its major export pipelines, affecting Soybean exports in the long run.

With this in mind, any Argentina Soybean exporter will need to pay close attention to Soybean and Soymeal forward prices to forecast their crush margins and hedge them. Importers, on the other hand, will to need to monitor variations in export volumes and forward freight executions to determine whether their supply chain is safe, or if it’s time to identify alternative pipelines.

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