The Growth and Relevance of Biodiesel in Brazilian Market – by Aboissa Commodity Brokers

Feb 22, 2021 | Agricultural Markets

Reading time: 8 minutes

By Tiago Vicente, cottonseed and soybean oil specialist in Aboissa Commodity Brokers.

As we all know, the world is in constant changing. One of the biggest goals that every company seeks to achieve is how to gain better results with lower costs and taking the environment in concern. That is not an easy task and there are a lot of challenges ahead. Based on that premise, for the past few years we have noticed an expansion in one of the most important markets in Brazilian economy: Biodiesel.

The benefits of Biodiesel for our country have been getting more attention from producers, below some examples:

Social Benefits: With the increase of Biodiesel volumes in Brazil (2018 being the biggest in the past 10 years), the oil seed crushing has also increased and larger volumes are expected for the next years, due to 20% of biodiesel (due to B20) goal in 2028. Today it is between 11% and 12%.
With this new legislation, more seeds are expected to be crushed in Brazil, which can benefit country families and create new jobs in the agriculture sector and in local crushers.

Environment: With this new goal of 20% of Biodiesel (B20) in the regular diesel, a decrease in the regular diesel production is expected, which can help the environment expelling less CO 2 in the atmosphere, specially in the largest cities where air conditions is getting worse every single year.

Economic: Replacing part of the fossil diesel for the biodiesel products (which for the most part is based on vegetable oils), most of the gas companies have a higher profit changing for this material which is cheaper than the fossil one.
Besides, Biodiesel plants are helping our country creating thousands of Jobs, helping the country’s economy and also helping our country to be known for more end products, not just agricultural ones, bringing the interest from overseas investors.
Brazil is a resourceful country for agricultural products, this is how the world sees us. All the raw materials that this segment requires, our country has in abundance, more than probably any other place.

In general, the main popular raw materials for this market are:

Animal Tallow: Brazil has the largest slaughterhouses in the world. Our meat is highly popular with exports constantly increasing. The by product tallow is very recommended for biodiesel product, mostly because of the price, performance and tax benefits, compared to other biodiesel raw materials.

Soybean Oil: Our country is now the biggest soybean producer in the world, we have overpassed USA. This is the product which has the largest availability and demand. Nowadays, soybean oil prices
are the ones which dictate the market so to understand more about the other raw material prices, it is important to understand this one first. Thanks to US currency and high demand in Biodiesel, last
year soybean oil prices have reached the highest levels in decades. Around 70-75% of the Biodiesel in Brazil is produced by soybean oil.
Due to the high US currency compared to Brazil Real, the exports of soybean oil increased. With that, the volumes of grains in local market became more limited and also thanks to higher demands in the
Biodiesel segment its clear to see the increase in the past year with the expectation to maintain to same way in 2021. In the chart below you can see the soybean oil prices in Brazil from the past tree years and the increase that happened last year.

Cottonseed Oil: Specially in the crude version, the demand for crude cottonseed oil for the biodiesel market has been growing constantly in the past few years. The crop is opposite to the soybean one so it is in the second semester of the year in Brazil. With no larger competition, this oil becomes one of the most attractive ones, especially in terms of price (usually 15-20% cheaper than soybean oil).

However, some biodiesel companies are a little reluctant to buy crude cottonseed oil mostly because of the darker color, which can impact on the final product colour and the Gossypol content that even after all the processing still remains in the Glycerine, (Biodiesel by-products).

Palm Oil: Brazil is becoming an international reference for palm oil production. It is expected for the next few years that with the larger investments our country will be self sufficient and a potential exporter.
With good quality and competitive prices (similar as the cottonseed oil ones), the palm oil (specially on the crude version) became a good option for the biodiesel companies. Some do not use this raw material yet because of the higher color and higher FFA, but some plants in order to use this cheaper material blend it with soybean oil, to get a correct color and process it without any problems.

DDG Corn Oil : Highly used in the US, the Acid Corn Oil is a by-product resulted from the Ethanol corn extraction. Brazil is discovering how and where to use this product, not only for animal feed, but also how to use it on Biodiesel processing.

Recycle used oil: With sustainability topic being in such a high popularity now, companies are trying to be as much Eco-friendly possible. Recycle companies are growing substantially lately as a consequence also the production of recycle oil. The offer is not on the same scale as the other oilseeds, but for Biodiesel this oil is also a great option with competitive prices and acceptable quality.

It is important to know that Biodiesel industry has become one of the main sectors in Brazil. With a sustainable growth, we open a new way on how the world see us. Not just being producers of raw materials but showing that we can also offer end products with quality and value.

Last year China was by far the largest soybean importer from Brazil, even though North American government has changed and world expects better commercial relation between countries, we don’t think it will affect the great alliance that Brazil and China built in the last few years, that’s why we expect that Chinese demand will remain strong for our Brazilian soy.

Taking that into account, producers must have a good strategy by controlling exports in order to avoid shortage in the local market and consequently forcing them later on to import soy at higher prices, as happened in 2020).

Brazil has the potential to be the largest producer of Biodiesel in the world, for this to happen, the next years will be crucial. That’s why in order to achieve such position, both government and private companies must work together by investing in technologies, incentives, infrastructures and logistics.
If we see this happening, Brazil will definitely rise again.

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