Oil World, 27 March 2020 reported that prices of soymeal from Argentina and Brazil have jumped up and now becoming the price leader. The strength in soymeal prices are caused by the following reasons:-
Restricted Movement: Soybeans transportation to domestic processors is now impeded by movement restrictions implemented to combat COVID-19. In Argentina, Reuters (March 2020) reported that soybean deliveries at crushing plants slowed because roads were blocked in more than 80 cities in an attempt to curb coronavirus spread. Effective on March 27, two important Argentine ports; San Lorenzo and San Martin, were put under quarantine (Reuters, March 2020). Ships had to wait two weeks before entering the harbor for loading and unloading. In Brazil, the country’s largest soybean producing state; Mato Grosso, has been declared under state of emergency for three months (The Star, March 2020). Two major towns in Mato Grosso were ordered to stop shipping grains to avoid the virus spread. Soymeal production and export from Brazil also drop due to disruptions in domestic transport as well as declining production prospects for biodiesel where shrinking demand for soybean oil as biodiesel feedstock will restrict soybeans crushings.
Growth in Compound Feed Market: Purchases from compound feed producers have picked up as a precaution for possible supply disruptions associated with COVID-19 fighting measures. Compound feed is a mixture of raw materials and supplements fed to the livestock, sourced from either plant, animal, organic or inorganic substances, or industrial processing (FAO). While soybean, corn, wheat and sorghum are the most commonly used raw materials, vitamins, minerals, and amino acids are the most common additives blended to form compound feed. The growing demand for meat and aquaculture products is the major driving force behind the growth of the compound feed market. Increased awareness regarding quality meat and milk products and increased livestock production are two other factors supporting the growth of this market.
Shortage of distillers dried grains (DDGS): DDGS, a by-product of ethanol production, is used in livestock feed and has been an economical source of protein. The cost per unit of protein for DDG was USD 5.48, compared to the cost per unit of protein for soymeal at USD 6.32 (Data Transmission Network). Under the current economic situation of low Brent crude price, ethanol plants are slowing their production while some plants have to be closed, due to negative margins in producing ethanol. The decreased production of ethanol limited the domestic supplies of DDGS, reducing its export supplies and causing consumer interest to shift to soymeal which then contribute to the latest soymeal price strength.
US soybean export is expected to benefit from export delays in South America. The declining Argentine and Brazilian soybean crush and soymeal export will give advantage to US soybean exporters as soymeal importing countries are likely to raise their imports and crushings of soybeans.
In the coming weeks, consumers are likely to switch from South American soybeans to US soybeans. Concerns about insufficient supplies and possible supply disruptions in South America have raised consumer interest in US soymeal, pushing up its export sales. Current low soymeal stocks in China’s crushing plants will further contributed to the price strength of soymeal. South American export delays in soymeal and higher soymeal prices could create a situation in which processors in Europe will reconsider their strategies and increase imports and the processing of soybeans. Those processors with multi-seed technology will probably shift from rapeseed to soybeans. This could result in additional purchase of US soybeans.
- Oil World No. 12 Vol. 63 27 March 2020
- Reuters, 21 March 2020. https://fr.reuters.com/article/industrialsSector/idUSL1N2BD2JW
- The Star, 21 March 2020. https://www.thestar.com.my/news/world/2020/03/21/brazil-calls-covid-19-state-of-emergency-as-bolsonaro-approval-slips
- FAO. http://www.fao.org/3/a-w8901e.pdf
- Data Transmission Network
Prepared by Nur Adibah and Zainuddin Hassan
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