International outlook for 2021/22 campaign SB
The SB complex market has had high uncertainty, while weather and international policies have played their part in shaping a stage where the supply of these products are a huge question mark in the short term.
During this last year, the international SB market witnessed great volatility, same as most commodities. This is valid for oilseed prices as well as for production and global trade fundamentals. The 2021/22 Argentine cycle, which began on April 1st, kicked-off with a South American drought as one of the main factors that disrupted the market, and later followed-up with the armed crisis between Russia and Ukraine, as main events conditioning the productive scenario.
The situation of the main SB producing countries
To understand what is happening in the global SB market, one must consider the decline in South America’s participation in the international production of the oilseed for the second consecutive year. This situation was confirmed despite the contradicting fact that in absolute terms the previous campaign reached a historical maximum.
With a production of 171.2 Mil MT combining the 2021/22 harvests of Argentina, Brazil, Paraguay, Bolivia, and Uruguay, these largest South American producers represent 50.1% of the 342 Mil MT that would be produced from the oilseed worldwide. It is worth clarifying that these figures result from considering the volumes reported by agencies of each country for the cases of Brazil, Argentina, and Paraguay, for which almost 9 Mil MT are subtracted from the tons reported by the United States Department of Agriculture (USDA). This way, the combined participation of these countries for the 2021/22 business year is the lowest since the 2011/12 cycle when the same analysis yielded a result of just 48.1%.
At the individual level, Brazil and the US lead the ranking of world producers with 122.8 Mil MT and 120.7 Mil MT respectively. In this context, the North American powerhouse narrows the difference compared to the South American counterpart, since after huge difference of 23 Mil MT between the two nations in 2020/21, Brazil’s advantage over the US dropped drastically to just 2 Mil MT in the 2021/22 cycle. Meanwhile, several steps below, Argentina continues as the third-largest producer in the world with a production of 40 Mil MT, according to preliminary estimates of the Strategic Guide for Agriculture (GEA) of the Rosario Stock Exchange (BCR). This sets the third consecutive drop in Argentina’s production after the 56.5 Mil MT of the 2018/19 cycle.
The same way that the production of the oilseed is reduced at an international level, it’s expected that SB trade will also fall. However, the global predominance will continue to belong to the South American region, contributing more than half of all the grain that will be traded internationally, in spite of the production cuts estimated by regional agents.
China’s role in the world SB market 2021/22
For this campaign, China is looking at making the lowest volume of SB purchases since the 2018/19 cycle. The USDA expects the Asian giant to import 94 Mil MT throughout the campaign, almost 5.8% below the previous period. According to the North American entity, this would be a consequence of the lower demand for animal feed (mainly for pork and poultry), while these industries seek to cut the inclusion rates of SBM to improve the low or negative margins in those incurred in recent months. However, the participation of the said country in international purchases is hardly reduced, going from 60.4% for the 2020/21 period to 60% in the new 2021/22 cycle. At the same time, due to the prices of the oilseed, it is expected that the Chinese government will sell part of its stock of the oilseed, to supply the local industry. Notwithstanding, despite what was mentioned above, it is projected that the increased meat production could boost Chinese imports to 100 Mil MT in the 2022/23 cycle, which could result in a historical record for said country.
Estimates for the global SB oil market
Regarding the SB crush, processing plays a fundamental role within the commercial circuit, and certainly, the international market for by-products represents a branch of special importance for Argentina, since it’s the main exporter of SBM and oil.
As for the countries of the region, Argentina will supply the market with about 47.6% of the world volume of vegetable oil from SB. Meanwhile, the second largest supplier is Brazil, which will contribute about 13.7% of the volumes traded with 1.7 Mil MT according to USDA. In Paraguay the processing industry suffers high degree of uncertainty regarding its capacity to supply raw materials, since CAPECO and CAPPRO have reported harvest estimates of 2.97 Mil MT and 4.05 Mil MT, respectively. This scenario could significantly complicate the Paraguayan crush industry which, according to 2021 data from the latter agency, 2.8 Mil MT of SB were processed; a volume considerably on the low side, considering the last 3 campaign-average of 3.45 Mil MT. At the same time, Paraguay is key to supplying the Argentine crushing industry with High Protein SB, complementing the local production of the oilseed. For this reason, the cut in Paraguay’s exportable balance will have a direct impact on the productive capacities of SB oil and meal in Argentina.
As a whole, the South American oilseed crush industry would represent 62.6% of the global SBO exports in 2021/22, reducing its participation in international trade by about 4.8%.
It should be noted that the international market for vegetable oils is currently in a bottleneck situation. Among the most relevant issues, in recent months we could see different factors that limit the international supply of oils of different nature. Restrictions on the export of palm oil by Indonesia, as well as the drought that affected rapeseed crops in Canada, the war in the Black Sea region, and the South American drought limited the supply possibilities of the international vegetable oil market.
Outlook for the SBM market
A similar situation occurs for SBM, with Argentina leading the world market for the by-product, while Brazil follows in second place. However, in this case the difference is smaller, since for Argentina, the USDA estimates exports of 28 Mil MT for the 2021/22 cycle, while Brazil would contribute 16.5 Mil MT, representing 41.3% and 24.3% of international trade respectively. Despite this, and the fact that these two countries would maintain their market share, the South American group would reduce its participation between campaigns from 71% to 68.9% in the 2021/22 campaign. Meanwhile, the US would increase its SBM market share from 18.2% to 19.3% in the current business year.
The SB processing industry in the US is currently performing well in historical terms and is expected to end the 2021/22 cycle with a crushing record exceeding 60 Mil MT for the first time. As a consequence of the increased crush, the US will increase the production of SBO and SBM to record levels, producing 11.9 Mil MT of oil and 47.1 Mil MT of meal. However, the bulk of oil production goes directly to its domestic market, with less than 10% of the tonnage produced per campaign destined to exports. For its part, SBM has a higher export balance, while it is expected that 27.8% of what is produced will be sent abroad in the 2021/22 cycle.
Conclusions
In conclusion, as a result of the severe drought that affected South American SB crops, the region is expected to decrease its participation in the international markets for oilseeds and their subproducts. Despite this, there is evidence of a high participation of these countries, exceeding 50% of the export market share in all products. Lastly, with the expectations of record imports by China in the next campaign and the uncertainty regarding the supply of vegetable oils, there are signs of firm demand for the SB chain.
Source: https://bcr.com.ar/
Photo: REUTERS/Stringer
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