Soy trade war to squeeze margins of Brazil’s processing industry

The trade war between the United States and China is already boosting Chinese demand for Brazilian soybeans—and is expected to compress profit margins for Brazil’s processing industry this year, said André Nassar, president of the Brazilian Vegetable Oil Industry Association (ABIOVE).

Following the election of U.S. President Donald Trump, soybean processors rushed to secure supplies and lock in prices where possible, but they were unable to cover their full annual demand. As a result, between 30% and 40% of the soybean crop has yet to be purchased and will now cost more, reducing industry margins.

“What’s happening now is somewhat similar to what we saw in 2018 [during Mr. Trump’s first term], when China shut the door on U.S. soy imports and turned to Brazil. That drives up the value of Brazilian soybeans,” Mr. Nassar said on Monday (14) at the “Future Fuel Law and Prospects for Biofuels” seminar.

Last week, the United States imposed 145% tariffs on Chinese goods, and Beijing retaliated with 125% tariffs on U.S. products. With American soybeans now heavily taxed, China has increased purchases from Brazil.

“Looking at port prices, we’ve seen premiums rising over the past week to ten days. That’s a clear signal soybeans are gaining value. The remaining volume that hasn’t been bought yet will be more expensive for processors. I don’t expect a major impact on crushing volumes, but this will reduce industry margins,” he said.

According to consulting firm Sin Consult, soybean export premiums at the Port of Santos are between $0.52 and $0.55 per bushel for May shipments and between $0.60 and $0.65 per bushel for June, driven by accelerated Chinese demand. “China is buying everything it can from Brazil. In the last ten days, 75 ships were sent there. We have the product to supply, and this trade dispute has pushed demand even higher,” said João Birkhan, CEO of Sin Consult.

Mr. Nassar said that although processing costs are rising, volumes should remain stable, supported by strong domestic markets for soybean oil and meal. For soybean oil, demand is driven by biodiesel blending mandates, as soybean oil is the main feedstock for biodiesel production in Brazil.

As for soybean meal, the outlook is also positive since it is used in animal feed, and Brazil’s meat production is growing—setting records in both exports and domestic consumption.

ABIOVE’s most recent forecast, released in March, projected 57.5 million tonnes of soybeans to be crushed in 2025. Estimates for soybean meal and oil output remained unchanged at 44.1 million tonnes and 11.4 million tonnes, respectively.

For total soybean production, the association forecast 170.9 million tonnes—slightly below the 171.7 million tonnes projected in February, but still a strong harvest.

“This was a crop with a lot of forward buying—more than in the last two or three seasons—but the industry can’t acquire an entire 170-million-tonne harvest,” Mr. Nassar said.

He believes China is frontloading purchases from South America, turning to both Brazil and Argentina. But in the second half of the year, he added, “there will be strong incentives for the U.S. and China to negotiate, as China will have supply concerns.”

Therefore, the squeeze on margins in Brazil’s soybean processing industry is likely a short-term issue, unless geopolitical dynamics between Washington and Beijing change. Another short-term factor hurting margins is the decline in domestic soybean oil prices, Mr. Nassar added.

Maurício Muruci, an analyst at Safras & Mercado, sees a challenging year for processors due to a drop of up to 30% in biodiesel prices and the freeze on blending rates at 14%. These pressures come just as Chinese demand is pushing up domestic soybean prices.

He explained that biodiesel prices are typically lower in the first quarter due to weaker demand. “For the second and third quarters, a price recovery had been expected to offset the early-year drop, but that was neutralized by the decision to keep the blend at 14%,” Mr. Muruci said.

Source: Valor International

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