South American Soybean Harvest: A Monster Crop with Global Implications

As we are now beyond the 50% mark of the harvest in Brazil, it is important to get some perspective on soybean and oilseed supplies. We are looking at a South American harvest of 8.5 billion bushels (231.4 million MT). This is massive. Furthermore, global soybean meal and oil consumption are increasing in 2024/25, with the USDA forecasting a record-high global soybean crush at 352.8 million metric tons due to higher demand in China, Argentina, Thailand, Ukraine, and Pakistan. Soybean meal has become one of the most competitive protein sources in the global market, with consumption forecasted at 270.4 million metric tons. Global soybean oil production is expected to rise to 68.1 million metric tons, with trade increasing to a record high of 13.5 million metric tons.

In Northwest Europe, rapeseed oil prices unexpectedly rose by 50 euro/mt today. RME gross margins narrowed to $88/mt with RME priced at $1,293/mt. The RSO discount to soybean oil decreased to $38/mt for June from nearly $80/mt. F0 prices also increased by $44/mt to $1,269/mt, reflecting gross margins of $70/mt, due to a sudden biodiesel tender by a French coop for late 2025.

It should be noted that soy crush margins on screen have been coming off systematically and should continue to do so in the face of the South American crop. With gasoil values rebounding a bit, it was also surprising to see how premiums, particularly for UCOME, moved to +845/mt over ICE gasoil. Remember that BOGO is trading at +275/mt.

It should be noted here how Brazil is considering a 90-day moratorium on biodiesel blending, which is not helpful for domestic crush margins on account of fuel distributor problems. According to recent reports, two of Brazil's three largest fuel distributors are facing financial challenges, with Vibra and Raízen both selling assets to improve cash flow. A surge in fraud involving biodiesel blending has led Sindicom, Brazil's association of fuel distributors, to ask regulator ANP to suspend biodiesel sales for 90 days.

We are also noticing in Brazil, just like in the US, a switch over to higher ethanol blends in gasoline while we see reductions in biodiesel blending. This, of course, must be supported by refiners that have strong diesel crack margins while gasoline cracks are poorer and worth blending with ethanol. Screen heat crack is over $26/bbl.

We can conclude that any continuing weakness beyond this $650/mt threshold in gasoil will be accompanied by weaker soybean oil and vegetable oil prices. The gasoil chart remains bearish, and any geopolitical improvement could push it down lower to the $600/mt levels. This perspective helps explain why biodiesel premiums in Northwest Europe remain so resilient—they're effectively functioning as a proxy short on gasoil. The elevated biodiesel premiums reflect market participants' positioning against anticipated further weakness in the underlying gasoil market, rather than genuine strength in biodiesel fundamentals. Given the enormous South American crop and increasing global crush capacity, the fundamental direction for vegetable oil prices should be downward, barring significant supply disruptions or dramatic policy interventions.

This outlook is further complicated by Indonesia's plans to raise its palm oil export levy and the UK's investigations into US HVO imports. These policy shifts, along with Brazil's potential biodiesel blending moratorium, could create short-term market dislocations, but the overwhelming supply fundamentals from South America will likely dominate price direction in the medium term, particularly if gasoil prices continue their bearish trend.