High soybean demand, prices cause Brazil to reduce biodiesel use requirement from 13% to 10%

The Brazilian government has temporarily scaled back its national biodiesel use requirement from 13 percent to 10 percent amid high soybean demand and prices and low stocks, all of which have pushed up biodiesel prices and compressed margins. The government announced the decision April 9.

About 71 percent of Brazilian biodiesel is made of soybean oil, and given that feedstock prices account for the vast majority of the cost of biodiesel production, the recent high prices have caused the government to ratchet back its biodiesel use requirement for the time being. In the U.S., soybeans prices are currently around $14 a bushel. A year ago, soybeans were as low as $8 a bushel.

“The government works to strengthen and consolidate the Brazilian biofuels market, but in an environment that allows competitiveness, seeking to guarantee national supply and preserving consumer interest in the price, quality and offer of the product,” the government stated April 9, adding that it will impose “the adoption of corrective measures to mitigate any momentary distortion that will occur. In the last few days, the government has been following the auction for the offer and acquisition of biodiesel (L-79) very carefully, in order to comply with the mandate to add biofuel to fossil diesel, in the proportion of 13 percent. …Despite the forecasts for the harvest of this grain for the current year point to a growth of 10 percent (from 124 to 136 million tons), the world market continues to have a strong demand for soybeans, mainly due to the low stocks of the product in the U.S. and the growing demand from China. In this context, and, with the understanding and contribution of the productive sector, it was necessary to make a momentary correction in relation to the percentage of mixture of biodiesel and diesel sold in the country, from the current 13 percent to 10 percent, in the 79th auction of biodiesel (L-79).”

The government of Brazil stated that it will resume the use of biodiesel at levels established by the National Energy Policy Council, as well as increase production and use of biofuels, “as soon as possible.”