Bunge stressed the boost to soyoil prices from growth in renewable diesel as it forecast continued supply tightness in grain and oilseed markets, as the likes of weather and war undermine supply prospects.
Greg Heckman, the Bunge chief executive, talking of the outlook for “the next couple of years”, said that crop supplies would remain squeezed, seeing a struggle for production to keep up with growing demand.
“If you look at the structural set-up on what needs to be done from a production standpoint globally to continue to build the crops to what we see coming on demand, I think S&Ds [supply and demand balances] continue to stay tight,” Mr Heckman told investors.
He noted too climate and weather “extremes”, and supply chain hiccups which “started with the pandemic but seem to not be able to get cured even as the pandemic winds down”.
“And then, of course, we’ve had the dislocation from the Ukraine-Russia conflict,” which has overshadowed exports from the Black Sea.
This effect “is going to carry on as well going forward… even if the war ended today, because of the lack of trust and because of infrastructure that’s been damaged”.
‘We’re still very tight’
The company was particularly upbeat on prospects for the soyoil market, given the boost to demand it is receiving from the US programme for boosting renewable diesel, which uses the likes of natural fats and greases, as well as vegetable oils.
Renewable diesel – which is also chemically more similar than biodiesel to conventional diesel, and so does not require blending, “is definitely a tailwind in biofuels in general globally,” Mr Heckman said, speaking after Bunge announced forecast-beating results.
John Neppl, the Bunge finance director, said that “when you look at just the front-end demand that we have for soybean oil… we’re still very tight and forward demand for soybean oil is very strong”.
“The demand is out there. And it does continue to grow steadily. We haven’t seen any decline or lack of interest” in soyoil either from energy industry, or from food groups, another large vegetable oil consumer.
‘Bigger part of the crush’
The appetite for soyoil was being reflected in the proportion it accounts for of the value of the soybean crushing products, with the vegetable oil proving more valuable compared with soymeal than in the past.
“Oil certainly has become a bigger part of the crush,” Mr Neppl said.
“It’s probably been hovered, say, in the 45% range in terms of contribution to the overall crush, whereas historically, it was much less than that.”
The crush for most of the 2012-21 period stood below 39%.
“Our expectation has been that oil will continue to be and perhaps could even be a bigger part of the crush going forward as demand increases around renewable diesel production.
“It’s been above 40% here for a while. And could it go over 50% in the future,” a level it did touch briefly in late June.
‘Soy dollar’ impact
The group added that the strong soyoil demand was supporting crush margins, which Mr Heckman termed “very strong” in North America.
However, Bunge noted a less promising situation in Argentina, where the farmer soybean selling encouraged by the country’s “soy dollar” programme last month had boosted short-term supplies for processing plants, but also directed more crop at exports.
While the programme was “helpful on the near term”, farmers have now “completely quit selling” having taken the chance to sell at enhanced peso prices, Mr Heckman said.
“Now they’ll wait and see what’s next. We’ve got ourselves positioned to be able to crush here for a while.
“But if you look at the replacement margins, they’re, of course, not good right now.”
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