Jun 28, 2010
Biodiesel Could Become Driving Factor for Soybean Demand in Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The increased use of biodiesel in Brazil could become the driving factor for internal soybean demand in Brazil especially since the total soybean production in 2010/11 is not expected to equal the superb results obtained in 2009/11. During the last growing season, Brazil produced 10 million tons of soybeans more than the previous year, but the total soybean production is expected to decline in 2010/11.
Approximately 80-85% of the vegetable oil used in biodiesel production is soybean oil. When Brazil moved from a B3/B4 blend to a B5 blend the demand for soybean oil increased 740 thousand tons, or the equivalent of the oil produced from 4 million tons of soybeans. Since the use of alternative vegetable oils to make biodiesel is still small, as Brazil increases the percentage of vegetable oil in the biodiesel blends, the use of soybean oil will increase as well. The increased demand for soybean oil could present a problem for vegetable oil users especially if next year's soybean crop is disappointing.
Even though it was a record soybean crop in Brazil last year, farmers are holding onto their soybeans and processors and exporters in Mato Grosso are having to pay R$ 3 reals per sack more or US$ 0.85 per bushel above the market price in order to attract farmers into selling their soybeans. According to Abovie, increasing the amount of soybean oil used to make biodiesel could be a problem in light of a study released last week that indicated that Mato Grosso farmers might reduce their soybean acreage by 2% next year. The state of Mato Grosso is responsible for approximately 30% of Brazil's soybean production.
The assistant Minister of Agriculture feel the biodiesel blend should not be increased in the near term because the demand for biodiesel will increase as the economy expands. Processors and livestock producers agree that it should not be increased, obviously because it could drive up the cost of soybeans and soybean meal. Exporters don't like the idea either because of higher soybean costs.
In contrast, several state senators from Mato Grosso, in concert with the Biodiesel Producers Association, feels that the government should increase the blend gradually to a B10 blend nationwide and a B20 blend for large urban areas. They also feel more should be done to increase the use of 100% vegetable oil as a fuel. They feel it would increase jobs in rural areas as well as rural incomes.
The biodiesel association would like to see the blend increase gradually to B10 nationwide and B20 in large urban areas.