Times are good for oilseed crushers, and poised to stay that way.
At least, according to Archer Daniels Midland, which reported support to crush margins both from “strong demand” for both the meal (as used in livestock feed) and oil (used in cooking, biodiesel) produced from processing the likes of soybeans and rapeseed.
Meal vs grains
Sure, consumer belt-tightening, in the face of high inflation and sagging economic growth, may be causing a switch by carnivores from red meat to cheaper alternatives, such as poultry.
But that is not such a bad thing, from a meal perspective, Juan Luciano, the ADM chief executive, said.
Chicken is “a more affordable protein. And chicken is where we get all the soybean meal [orders] mostly sourced,” he said.
Soymeal has “a cost advantage to corn” in feed rations, and “even” to wheat at current prices, Mr Luciano said, terming meal “an important feed for all types of protein and especially for poultry”, of which numbers are “rising”.
‘Margins have popped’
Vegetable oil demand, meanwhile, is being spurred by demand from biofuel plants, who use it for making biodiesel, or for producing more advanced renewable diesel.
“If we have any issue in edible oils, it’s certainly been more than offset by the new demand on renewables,” Mr Luciano said.
Biodiesel is “providing another avenue to support crush margins even in Europe”, where a reliance on rapeseed/canola for making the biofuel is in fact proving extremely profitable.
Canola crushing margins “have popped… they’re very strong”, with ADM reporting them at about $100 in North America, double year-ago levels.
In Europe, they have soared to about $150 a tonne from $35-40 a year ago.
But not Argentina…
With economic recovery in China set to boost demand too for both vegetable meals and oils from that key market, ADM foresaw a “strong” margin outlook for the rest of 2022 for crushers.
Unless, that is, they are in Argentina, where crushers – the world’s top meal and oil exporters – are fighting the knock-on effects of the likes of export taxes, an inflation rate above 60% and a peso which has devalued by one-quarter against the dollar so far this year.
Such dynamics encourage growers to hang on to crop as a dollar-denominated hedge, so making it more expensive for crushers to buy and squeezing margins, with the prospect of elections next year, and a potential change to a more farmer-friendly regime, also viewed by many observers as incentivising hoarding.
“We see Argentina pretty much, given the current financial issues, outside of the markets in terms of their aggressiveness,” said Mr Luciano.
The country has an “exchange rate delta that makes the farmer really have no desire to sell and… to a certain degree, curtailing crush in Argentina”.
And Mr Luciano, as an Argentine national, should know.