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April 12, 2021

Brazil to Lower Biodiesel Blend from B13 to B10

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The Brazilian Minister of Mines and Energy announced last Friday that the percentage of vegetable oil blended into petroleum diesel would be provisionally lowered from 13% (B13) to 10% (B10). The rational for the change is due to the high cost of biodiesel with the Ministry citing the elevated domestic price of soybeans and soybean oil for his decision.

Participants in the sector including the Brazilian Association of Vegetable Oil Industries (Abiove), the Brazilian Association of Biofuel Producers (Aprobio), and the Brazilian Biodiesel and Biokerosene Union (Ubrabio) criticized the move and asked for it to be rescinded. They lamented that this is market intervention and fact that the government is blaming the high price of biodiesel on the biodiesel industry and not on the price of petroleum.

Soybean oil makes up more than 70% of the vegetable oil used in Brazil's biodiesel with the remainder coming from beef tallow and other oils. The high price of soybean oil is the function of the strong demand for soybeans in the international market and the devaluation of the Brazilian currency.

With the blend reduced to 10%, the industry estimates that it would reduce the use of soybean oil by 650,000 tons per year and soybean crushing would decline by 3.25 million tons per year. The lower crush would also lower the production of soybean meal which is already very high priced due to near record high domestic soybean prices and tight supplies. The livestock industry was already complaining of high prices for corn and soybean meal and the reduced crushing of soybeans could make the situation even worse.

With the reduced competition from the domestic crushing industry, more soybeans would be available for exports and the industry expects that Brazil's soybean exports would increase from the initial expectation of 84.5 million tons in 2021 to as much as 88 million tons.

The industry feels this will throw the biodiesel sector into disarray because they had already made the investments needed to increase the blend percentage to 15% by the year 2023, which was the stated goal of the government. The industry is hoping that the reduced blend is only temporary.

This is not the first time the government has temporarily lowered the blend percentage in biodiesel, but in the past, it was lowered due to an insufficient supply of soybeans. That is not the case this time as Brazilian farmers finish harvesting a record large soybean crop