Argentine soyoil surges as crushers take ‘stand’ on poor margins

15 May 2020 | Rei Geyssens

Prices for soyoil in Argentina’s Up River complex rocketed during the second half of the week to their highest level in a month as crushers raised offers sharply on a lack of soybean coverage and farmer selling.

Basis premiums for the soft oil for June shipment jumped from 0.60 ct/lb under the July CBOT soyoil contract on Monday to 0.50 ct/lb over on Friday, while the underlying futures contract remained mostly flat.

That meant that flat prices for next-month shipment were quoted at around $595.50/mt FOB Up River on Friday, up over $30/mt on the week to the highest level since mid-April.

In neighbouring Brazil, basis premiums for the same month gained 90 points on the week and hit 0.60 ct/lb over on Friday, with flat prices at $597.75/mt FOB Paranagua.

“The Argentine and Brazil [soyoil] markets were bid up as crushers took a stand on bad margins,” an Argentine broker said, adding that they were warning crush levels could be cut if sales of the derivatives did start to pick up.

Weak crush margins

Gross crush margin – excluding any fixed costs – in Argentina have halved since the start of April to just $15/mt this week, according to Agricensus calculations, as soymeal prices shed 5% while soyoil prices plummeted 30%.

Levels in Brazil were not much more attractive, coming in at just $17.75/mt.

It has put crushers in a tough position, forcing them to raise prices in order to make their operations economically viable. 

“Farmer selling has been very poor, [soybean] ownership [by crushers] is diminishing each day, and now add negative margins to that,” a second Argentine broker said.

Despite Argentina’s soybean harvest 87.4% completed as of this week, weekly sales of soybeans by farmers have slumped to around 500,000 mt, according to data released by Argentina’s ministry of agriculture.

They normally tend to pick to well above the 1 million mt mark at this time of year.

The “blue” rate

The sluggish sales come despite the growing harvest pressure and a depreciating Argentine peso, which tends to trigger an increase in domestic sales with the official rate against the US dollar nearing the 68 mark – a record low.

With the country short in US dollars and its finances in trouble, the unofficial “blue” market rate has diverged further from the official rate and was last pegged as high as 140 to the dollar, according to market sources.

Yet local farmers cannot take benefit of this unofficial rate and must use the  official one.

This is further compounded by a 33% export tax – with the effect that inland prices have been hammered lower.

There one dollar in bean sales offers farmers around 45 pesos, rather than the official 68 and the unofficial “blue” rate of 140, meaning they “are not encouraged to sell and are waiting for a further devaluation,” the first broker said.