2020 Industry Report:Soybean OilNovember 2020

Market Intelligence Team

Written by

Executive Summary 2

Production

Exports

Recent Developments

• Globalproductionforsoybeanoilhasbeenonanupwardtrendand isforecastedtoreach56.78millionMTforthe2019/20season,anincreaseofapproximately10%fromthe2015/16season.Therehasbeen rapidgrowthinproductionforsoybeans,specifically inLatinAmericawiththeintroductionofthedoublecroppingsystem.

• Thetopexporterforsoybeanoil (HS:1507) isArgentinabyasignificantmargin,witha41%shareinworldexportscomparedtothesecond-largestexporter,theUS,withan8%share.

• FortheUS,soybeandemandfromChinawas incrediblyhigh,evenafterChinahad importednearlya record-breakingamountof imports fromSouthAmerica.SoybeanpurchaseshavesurgedasChinaneededfeedforitsrecoveringlivestockaftertheASFoutbreak,causingsoybeanpricestoincreaseaswell.

• InBrazil,productionforecastsforthe2019/20seasonstandatatotalof125.6MMT,andforthe2020/21season,productionwillbeupevenmore,atroughly131MMTeventhoughtheremightbesomecomplicationsduetothedryweather.

• Argentinegrowersareexpectedtoplant500KhalessofsoybeansforMY2020/2021withtheincreaseofexporttaxesforsoybeansandsoybeanoils.

• Eventhoughthe2020/21seasonhasjustbegun,USsoybeanexportshavebeenhighdespitelowersupplies,thussupportingthehighprices.Soybeanoilpricesforthenewseasonareexpectedtoincreaseby0.5centsto32.5centsperpound,with theexpectationof increases inprices forwholesoybeansandmeals.

Part. I

3

Chart 1.Source:ITCTradeMap.

Executive Summary

Global Exported Value of Soybean Oil, 2001-2019.

Contents

Part I - Product Information ··············································································· 6

1.1 Consumption Channels

1.2 The Rising Popularity of High Oleic Soybean Oil

Part II - Processing of Soybean Oil···································································· 8

2.1 Soybean Value Chain

2.2 Logistics of Soybean Oil

2.3 Quality Factors of Soybean Oil

Part III - Global Market Dynamics······································································ 12

3.1 Production

3.2 Exports

3.3 Imports

3.4 Price Trends

3.5 Consumption

Part IV - Country Profile/Recent Developments············································ 16

4.1 Spain

4.2 Brazil

4.3 The US

4.4 Outlook on Soybean Oil

Part V - Sources······································································································ 19

Part I

Product Information

1.1 Consumption Channels

1.2 The Rising Popularity of High Oleic Soybean Oil

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Soybean oil iswidely usedwithin the food industry in variousapplications. It isutilizedinthecreationofmargarineandshortenings,aswellas inmorecommonlyseenfoodssuchasmayonnaise,saladdressings,andfrozenfoods.Inthecreationofpreparedfoods,soybeanoilisagoodadditionasitisnotstronginflavorandblendswell.

Asdemand foroilswith lowersaturated fat levelsbutwithhighermonounsaturatedfats increases,higholeicoilshavebecomeat thecenter stage todeliver theneed.High-oleic soybeanoilshavealongershelf life,withvirtuallynotrans-fatandthreetimesthelevelofmonounsaturatedfats thanconventionalsoybeanoil.Within theUS,partially-hydrogenatedoilshavebecomebanned,andtransfatlabelinghasbecomearequirement,whichhaspushedprocessorstoconsiderthehigh-oleicsoybeanoil inordertomeetthesemorestringenthealthstandards.

Part. I 6

Product Information

Soybeanoil,orsoyabeanoil, isamajorpartoftheedibleoil industry,alongwiththelikesofcanola,sunflower,andmaizeoil,becominganintegraladditiontothefoodsectorinamatterofafewdecades.Itiswidelypopularasitcanmaintainitsliquidformatvarioustemperatures,havelowlevelsofsaturationcomparedtootheredibleoils,andcontainsahighquantityofessentialfattyacids.Theoilitselfisknowntodirectlycompetewithpalmoil,whichisconsideredtobethecheapestedibleoiloptionwithinthefoodprocessing industryaswellas inrestaurants. Inrecentyears,asconsumersstartedtobecomemorehealth-conscious,therehavebeenmovementstoreducethenumberoftransfats infoods, inwhichcertainmajorcompaniesandstakeholdershaveoptedforhigholeicsoybeanoil insteadoftheconventionalsoybeanoil.

Consumption Channels

The Rising Popularity of High Oleic Soybean Oil

Part II

Processing of Soybean Oil

2.1 Soybean Value Chain

2.2 Logistics of Soybean Oil

2.3 Quality Factors of Soybean Oil

Part. II 8

Processing of Soybean Oil

Preparation of Soybean Before Solvent ExtractionInorder tocreatesoybeanoil, itsoilsmustbefirstextractedfromthesoybean.Onaverage,soybeansarereportedtocontain20%ofoil,accordingtotheEncyclopediaofFoodSciencesandNutrition.Tobeginprocessing,thebeansarefirstcleanedandthenseparatedintomeatsorpieces.Thehullsofthesoybeansarethenremovedthroughtheprocessofaspiration,whilethemeatsare“conditioned”,orput inmoremoistureandwarmed.Theconditionedmeatsarethenrolledtobecomeflakes,roughly0.025mminthickness.Therollingprocesswillensurethatsolvents(usedtoextractoils)willbeabletopenetratethroughthesoybeantissueseffectively.Someotheradvancements,suchastheuseofacookingextruderhasbeenestablished,whichultimatelycreatescolletsinsteadofflakestominimizetheamountofenergyrequiredtodissolvethesolventafteroilextraction.

2. Solvent Extraction

Thepreparedflakeswillbecombinedwithasolvent,suchascommercialisohexaneorhexane,whichworkstoseparatetheoilfromtheflakes.Thenthesolventusedisremovedsothatitcouldbereused.

3. Refining

Theoilwhich is removed through thesolvent isconsideredascrudeoil,whichmustbe refined through theprocessofdegumming,wherephospholipidswillbe takenout,andthenrecovered.After degumming, theoilsmustbeneutralizedtoeliminateacids,bleached to removeunnecessarycolors(dependingonthe importingcountry,theshadeofcolorofoilsitprefersmaydiffer,suchas inSouthKorea,mostof theoilsarepreferablyclear),andthendeodorizedtoremoveodorsandcertainflavors.

4. Hydrogenation

Theprocessofhydrogenationcanbecarriedoutpartially,whichisknownasbrushhydrogenationtoreducetheamountoflinolenicacidtoroughly3%.Linolenicacidisdisadvantageoustokeepinoilsasitreducesshelf-life,andalsocreatesanoff-tasteandodor

Part. II

9

Processing of Soybean Oil

intheproduct.Amoreextensivehydrogenationprocesscomesintoeffectwhentheoilmustbeconvertedintowhatiscalled,“semisolidfats”,whichincludesfoodssuchasmargarine,butter,amongothers.

Soybeansaregreatlyversatile in itsapplications, inwhichafterharvests, it isstoredandcrushed for twoprimaryproducts:oilandmeal.Oilsareusuallydirectedtowardsconsumptionorbiodiesel,whilemealsareusedforanimal feed.AccordingtononprofitorganizationCeres,roughly68%oftheworld’ssoybeansareusedformeal,or tofeed livestock,while17%arecrushedforoil,andthentheremaining15%left inthewholebeanform.Nearlyall (95%)ofsoybeanoil is forhumanconsumption, forfoodssuchasmargarine,mayonnaise,andcookingoil.IntheUS,majorstakeholderswithinthesoybeanvaluechainconsistoftheseedcompanies,traders/distributors,manufacturers,andthenrestaurants/retailers.Notablenameswithin thischain includeDupontandSyngenta thatsupply theseeds, traderssuchasCargillandLouisDreyfusCommodities,Manufacturers (in thecaseoffoodconsumption)UnileverUSAandConagraBrands,andrestaurantssuchasMcDonald’sandlargeretailerssuchasWalmartandKroger.

Soybean Value Chain

Chart 1.Source:Ceres

Part. II

10

Processing of Soybean Oil

Soybeanoilcanbetransportedas is,as it isoriginally ina liquidform.Butunderconditionswherethetemperatureisextremelylowwhichmaycausetheoiltosolidify,theoilmustbeheated.Duringtransportation,ventilationshouldnotoccurasitcouldcauseoxidation,makingtheoilsrancid.

Shipment and storage temperatures for soybean oil

Type

Loading Temperature 24°C.

Travel Temperature 15°C (12-25°C)

Solidification Temperature -8 to -18°C.

Pumping Temperature 27°C.

Thequalityofthesoybeanoil iscloselyrelatedtothequalityofthesoybean,wherethecleanlinessofthesoybean isacriticalfactor.TheUSandSouthAmericansoybeanaredifferent inthisaspectwheretheSouthAmericansoybeanstendtocontainmoreimpurities thantheUScounterpart.Otherdifferencesdependon the location that thesoybeanswereproduced in,whereParaguayansoybeansreportedlyhaveamorereddishappearanceasitssoilshavemoreironcontent.Impuritieswithinthesoybeanswillaffectthefinaloilproduct,as it ismoredifficulttoachievetransparencywithin theoils. If thebeanshavemore than4percentofreddustcontent,forexample,thiswillmaketheoilsalsohavearedtint,thusmakingoperatingcostsmoreexpensivewhenprocessorsneedmorebleachingclaytoremovethecolor.

Logistics of Soybean Oil

Quality Factors of Soybean Oil

Chart 1.Source:Cargohandbook

Part III

Global Market Dynamics

3.1 Production

3.2 Export

3.3 Import

3.4 Price Trends

3.5 Consumption

World production of soybean oil

Global production for soybeanoil hasbeenonanupward trend,forecasted to reach56.78millionMT for the2019/20season, anincreaseofapproximately10%fromthe2015/16season.Therehasbeenrapidgrowth inproductionforsoybeans,specifically inLatinAmerica.AccordingtotheOECD/FAO,theprojectedgrowthofsoybeansforBrazilisexpectedtosurpassthatoftheUS,with1.5%p.a.comparedto0.6%p.a.overthenextdecade.ThereasonforthistremendousgrowthwithinLATAMcountriesisattributedtotheirdoublecroppingsystem,inwhichsoybeanisgrownalongsidemaize,thusincreasingthecroppingintensity.

Thetopexporterforsoybeanoil(HS:1507)isArgentinabyasignificantmargin,witha41%share inworldexportscomparedtothesecond-largestexporter,theUS,withan8%share,accordingtodatafrom2019.WithglobalexportsdominatedbyArgentina,itissafetoassumethatthecountryhasamajorimpactontheglobalsoybeanoiltrade.

Imports havebeen traditionally ledbyChina, but this hasbeenoverturnedby India in recent years. Prices for soybeanoil haveplummetedwiththeincreaseinsoybeanproductioninLATAMcountries

Part. III 12

Global Market Dynamics

Production

Exports

Imports

Part. III

13

Graph 3.Source:ITCTradeMap

Global Market Dynamics

aswellasincreaseddomesticproductioninChina,whichhasincentivizedIndia topurchase largequantitiesof theoil.Palmoilhasbeen thepreferredchoiceofimportsforIndiaasit isthecheapestformofedibleoil,butsoybeanoil isknowntobeofbetterquality,andmuchmoreresistanttotemperaturechanges.Soybeanoil’spremiumsagainstpalmoilhavealso loweredsignificantlyagainstpalmoilaswell,decreasingasmuchas50%atonepoint. In2019, India’sshareof importsstoodat24.8%,whilethesecond-largest importer,China,stoodat7%.Thisdynamicisthemostpresentduringtheperiodbetween2014-15whensoybeanimportvaluefor India increasedby36%,andimportvalueforChinadecreasedbyapproximately41%.

Share in world imports for soybean oil, 2019.

Overtherecentyears,globalsoybeanoilpriceshavebeenonaslumpowing toexceptionalharvests inmajorproducingcountries in theAmericas,andasChinahasslowlymade itsway to relyon itsowndomesticproductionforsoybeans insteadof imports.ThegrowthofChinahasastronginfluenceonthepricesofsoyoil,accordingtotheCME, inwhich it raisesthepricesofoilsup,whilesoybeanmealsarelowered.Consumptionofvegetableoils tends to increasewith theeconomicgrowthofacountry.Thisistracedevenbacktowardscrudeoilprices,wherewiththeincreaseofcrudeoil,biodieselpricesincrease,andconsequentlyvegetableoilpricesaswell.

Price Trends

Part. III

14

Global Market Dynamics

However,recently,pricesforsoybeans,andconsequentlysoybeanoilhavegrownrapidly,afterthe initialdipatthebeginningof2020fromcoronavirus lockdowns.SoybeanpurchaseshavesurgedfromChina,amajorcrusher,toprovidefeedfor itsrecoveringlivestockaftertheASFoutbreak,causingthe longestpricerally in40yearsduringFall2020,accordingtoBloomberg.SouthAmericansupplieshavealreadybeennearlydepletedbypurchasesfromChina,andastheexpectedUStotalsoybeancropwaslowerthanoriginallyforecasted,addingtothepriceincreases.

Soybean and Soybean Oil Prices, USD/MT

Soybeanoil isoneof themostwidelyconsumedvegetableoil in theworld,onlysecondtopalmoil,accordingto2019/2020forecastsfromtheUSDA,with56.63millionmetrictons,whilepalmoilwasat74.63millionmetrictons.

World consumption of soybean oil

Consumption

Graph 4.Source:ADHB

Graph 5.Source:USDA

Part IV

Country Profile/Recent Developments

3.1 Argentina

3.2 Brazil

3.3 United States of America

3.4 Outlook on Soybean Oil

Argentina is the largestproducerofsoybeans,withnearly83%ofproducedsoybeansdirectedtocrushing,accordingtothe2017/18datafromtheArgentineMinistryofAgriculture.Mostofthecrushing isforsoybeanmeals(74%)whichnearlyallofitisexported,whiletherest(19%)isforsoybeanoil.Goingdownthischain,morethanhalfofthesoybeanoilproduced(58%)aresentoutforexports,while6%isfordomesticuse.Incomparisontosoybeanexports,whichnearlyallofitisdirectedtotheChinesemarket,soybeanoilexportsaremuchmorediverseintermsoftheircountryprofile,withIndia leadingin imports. Importsofsoybeanoil fromChinaarenotasprevalentas itusedtobe,as thecountryhascrushingcapabilitiestoproducesoybeanoilon itsown.SoybeanoilexportsforMY2020/21areexpectedtobeat6MMT,which isanincreasefrompreviousforecasts.

Soybean ProductionThrough the introduction ofDecree230/2020, export taxes forsoybeans,alongwithsoybeanmealandoilhaveincreasedinordertocompensatefordomesticfinancialneeds.Someagriculturalcommoditieshavedecreasedinexporttaxes,suchassunflowerseeds,butsoybeans,alongwithsoybeanmealandoilhavehadtheirratesincreasefrom30%to33%.Theimpactofthisincreasedratewillbeputonfutureplantings,inwhichaccordingtoforecastsfromtheUSDA,Argentinegrowersareexpectedtoplant500Kha lessofsoybeansforMY2020/2021.Thisindicatesroughly5.6%decreaseforacreagesplantedfromthepreviousseason,andwitha forecastedtotalproductionof51MMT.Growerswhohavetodealwithhighertransportationoroperatingcostsarelikelytoturntoothergrainsandcereals insteadofsoybeansasprofitabilityis lowered.Butassoybeanshavea relatively low inputcost,someproducerswillcontinueplantingsoybeansinhopesofbetterpricing.

Part. IV 16

Country Profile/Recent Developments

Topproducers,aswellasexportersofsoybeanandsoybeanby-products(mealandoil),aretheSouthAmericancountries-Argentina,BrazilaswellastheUnitedStates.ThedevelopmentofthesoybeansectorinSouthAmericancountriesdiffersfromtheUSinthattheUScrushingfacilitiesaremainlyfordomesticpurposes,whiletheSouthAmericancrushingsectorisexport-oriented.

Argentina

Part. IV

17

Country Profile/Recent Developments

Likeothermajorsoybeanproducingcountries,mostofthevaluefromthesoybeanscomesfromtheprocessingofthebeansintomealsforlivestockfeed,whichisthenexportedtocountries likeChina.Thisthuscreatesthefollowingpercentages,whereonaverage,78-80%ofthesoybeanswillbeprocessedasmeal,18-20%assoybeanoil,andtherestforotherlowvaluefeed.Forthe2019/20season,accordingtotheUSDA,most,orthree-quartersofBraziliansoybeanexportsweresenttoChinaaccordingtothelatestdatafromOctober.ShipmentsofsoybeansonBrazil’sparthaveproved tobesuccessfuldespite thepandemic,andBrazilhasshipped38%moreduringitspeakseason(thefirst8monthsoftheyear)thanthepreviousone.Countries,particularlyChina,hadstockeduponsoybeanimportsamidsttheuncertaintyofhowthepandemicwillplayout.

Soybeanoilexportsareexpectedto increaseby300MTto result in1.1MMTbytheendofMY2019/20.ExportshavebeengoodforbothsoybeansaswellassoybeanoildueasBrazil’sexchangerateplummetedagainstthedollar,butthistrendinsoybeanoilexportsarenotexpectedtoholdoutfortherestoftheyearassoybeansuppliesareexpectedtodwindleout.

Soybean ProductionProductionforecastsforthe2019/20seasonstandsatatotalof125.6MMT,andforthe2020/21season,theproductionwillbeupevenmore,withroughly131MMTeventhoughtheremightbesomecomplicationsduetothedryweather.TheNortheastregionsofthecountryhavebeenseeingrapidgrowth,especiallyascropssuchascottonwhichhavebeenwidelygrownhaveprovedtobenotasunprofitableinthecurrentmarket.

Withinthesoybeanexportchannel,82%ofsoybeansareexportedinthewholeform,15%areexportedasmeal,and3%areexportedasoil.Themain importersforUSwholesoybeansareChina,Mexico,Japan,andIndonesia,whilesoybeanoilexports’mainimportersareMexico,China,theDominicanRepublic,andSouthKorea.Demand fromChinawasincrediblyhigh,evenafterChinahad importednearlyrecord-breakingamountofimportsfromSouthAmerica.

Brazil

The US

Part. IV

18

Country Profile/Recent Developments

Soybean ProductionInthe2020/21seasonwhereharvestsstartedSeptember,productionhasbeenforecastedtobeat4.3millionbushels.Harvestareasarepredictedtobea totalof82.3millionacres,which is lowered frompreviousforecastsaskeystatessuchasNorthandSouthDakotahavereportedreductions,according to theWorldAgriculturalSupplyandDemandreport.Eventhoughthe2020/21seasonhas justbegun,exportshavebeenhighdespite lowersupplies,thussupportingprices.Soybeanoilpricesforthenewseasonareexpectedtoincreaseby0.5centsto32.5centsperpound,followingtheincreasesinwholesoybeansandmeals.

Forecasts fromS&PGlobalPlattsandtheUSDAreport lowerendingstocksforsoybeanforthisseason,asproductionfromtheUShasshrunk,while foreignexportshavebeenhigh.Thiswillnothelpthe2020/21season,wheresoybeansuppliesareexpectedtobetightenedduetotheupcomingLaNina,wherethiswillaffectkeysoybeanproducingareasinSouthAmericawithdrierweatherconditions.Withexpected lowersuppliesofsoybeans,soybeanoilpriceswillremainhighaswell.However,soybeanstocksinChinaareampleasofnow,andfuturecontractshaveactuallyseenfallsasSouthAmericancountriesbegintheir2021harvestseason.

Outlook on Soybean Oil

Part. V 19

Sources

ITCTradeMap.HSCode1507Soybeanoilanditsfractions,whetherornotrefined(excludingchemicallymodified).

Bloomberg.“SoybeanFuturesCapLongestRallyin40YearsonChinaDemand.”

FAO.OilseedsandOilseedProducts.

ADHB.FuturesPrices.

ScienceDirect.Soy(Soya)BeanOil.

ScienceDirect.Soy(Soya)Beans/ProcessingfortheFoodIndustry.

Auri.“AURIDrivesDemandforHighOleicSoybeanOilinUniversityFoodserviceOperations.”

BMT.“SoybeanOil.”

TheWallStreetJournal.“FallingSoy-oilPriceCurriesFavorinIndianKitchens.”

TheWallStreetJournal.“SoybeanPricesRallyasChinaRampusUpBuying.”

MinisteriodeAgroindustriaPresidenciaDeLaNacion.“Argentina&SouthAmericanSoybeanProduction.”

USDA.OilseedsandProductsAnnual-Argentina.

USDA.Oilseeds:WorldMarketsandTrade.

USDA.WorldAgriculturalSupplyandDemandEstimates.

ResearchGate.SoybeanProductionandProcessinginBrazil.

S&PGlobalPlatts.“USSoybean2020-21outputfallsonSeptemberestimates.”

USSEC.“CleanlinessofUSSoybeansisaKeyFactorforEfficientSoyOilProduction.”

FitchRatings.“LaNinaLikelytoSupportYields,LowerPalmOilPricesin2021.”