Brazilian biodiesel output will increase to 3.1 million metric tons this year from 2.56 million tons in 2013, with soybean oil the main feedstock, the Hamburg-based researcher wrote in an e-mailed report.

Brazil’s government has mandated biodiesel account for 6 percent of diesel fuel as of July, rising to 7 percent in November, according to Oil World. South American soybean oil prices rose in the past four weeks, reflecting demand from the biodiesel industry in Brazil and Argentina, the researcher said.

“Various government initiatives have significantly improved biodiesel production prospects for this year,” Oil World wrote. “This is good news for producers in the two countries, as they will be able to better employ existing biodiesel capacities.”

Brazil has an estimated biodiesel production capacity of 6.2 million tons and Argentina can produce 4.4 million tons, according to Oil World. A 1-percentage point increase in the Brazil biodiesel mandate is equivalent to 45,000 to 50,000 tons of additional demand for the fuel per month, it said. Argentina’s biodiesel output is forecast to climb to 2.45 million tons from 2 million tons, the analyst wrote.

Biodiesel makers in Brazil may lift soybean-oil use to 2.23 million tons from 1.89 million tons, while use of tallow is forecast to climb to 650,000 tons from 515,000 tons, based on the report. The share of soybean oil in biodiesel production is limited by law to 80 percent, Oil World said.

Brazil’s Exports

Brazil’s rising domestic use of soybean oil may cut exports to 1.3 million tons in 2014 from 1.36 million tons last year and 1.76 million tons in 2012, Oil World wrote.

Argentina’s exports of the vegetable oil may rise to 4.9 million tons from 4.36 million tons, while biodiesel shipments are predicted to rise to 1.35 million tons from 1.15 million tons in 2013.

Soybeans are crushed to produce oil and meal. Increased crush in response to oil demand is causing a “noticeable increase” in soybean meal production, Oil World said.

“The prospective sizeable increase in biodiesel production in the remainder of this year will keep soybean crushings well above last year, contributing to further sizeable increases in soya meal export supplies,” the analyst wrote. “We expect soya oil prices to appreciate relative to soya meal.”