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June 6, 2011

Abiove Wants More Soybean Oil in Brazil used for Biodiesel

Currently soybean oil makes up 80% of the vegetable oils used to make biodiesel in Brazil, but the Brazilian Association of Vegetable Oil Industries (Abiove) feels that if allowed; soybean oil could make up a higher percentage of vegetable oil used to make biodiesel. The Brazilian government set a limit of 80% soybean oil because they wanted to give incentives for the development of alternative oils such as palm oil, cotton seed oil, peanut oil, nut oil, tallow, etc., but the development of these alternative oils has been slow to materialize.

With the continued increase in the number of soybean crushing plants in Brazil and the recent announcement from Cargill and Bunge that will invest in new biodiesel plants, officials from Abiove feel that there are ample supplies of soybean oil in Brazil to meet both the demand for biodiesel production and human consumption. Additionally, high soybean prices are a strong incentive for Brazilian farmers to continue expanding their soybean production not only in 2011/12, but in future years as well.

Approximately 2.5 million tons of vegetable oil is used to make biodiesel in Brazil, but Abiove feels that 5 or 6 million tons could be used for that purpose. As Brazil's soybean production continues to increase, the percentage used for biodiesel has fallen. Last year 25% of Brazil's soybean oil production was used in biodiesel production, which was down from 35% in recent years. Abiove indicated that the current B5 blend (5% vegetable oil) could easily be raised to B6 or B7 without any additional strain on the domestic soybean oil market.

In additional biofuel news, government officials in Brazil are concerned about the potential for tight ethanol supplies once again during the intra-harvest period next January to March. The last two sugarcane harvests in Brazil have been mediocre and as a result, ethanol supplies have been very tight resulting in record high ethanol prices during the intra-harvest period.

In a recent meeting involving The Minister of the Treasury, the Minister of Agriculture, the Minister of Mines and Energy, and representatives from the sugarcane/ethanol industries, the chief topic of discussion was how to supply enough ethanol to meet the domestic demand during the intra-harvest period. No firm actions were taken, but they hope to have recommendations for President Rousseff within 30 days.