Soybean prices to sprout new fronts

Domestic as well as global soybean markets have witnessed good volatility in 2014 on host of various factors. In the first four month of the year, prices were in the grip of bulls on reports of substantial crop damage in India as well as fall in the yield of the crop in South America due to adverse climatic conditions in both the regions. However, with the commencement of sowing in the US in May, prices started to decline from higher levels on expectations of a bumper global crop. Prices continued to remain weak.

India is the largest consumer of edible oils in the globe and is largely dependent on imports to meet its domestic requirements. Currently, India imports more than half of its total domestic edible oil for consumption.

Soybean is the largest produced edible oilseed in India and holds a giant’s share of about 40 percent of the country’s total oilseed production. Being a kharif crop, sowing of the oilseed begins in June through July while harvesting takes place between September and October. Upon crushing of soybeans, about 18 per cent oil is obtained while the remaining 82 percent is soy meal. Soy oil can be used for both human consumption as well as industrial purposes while soy meal is used as a feed for poultry and livestock.

Soybean planting in 2014-15 season commenced late due to below normal and late revival of rains. The total area covered under soybean declined about 10 percent to 11.02 million hectares compared with 12.22 million hectares last year. The government expects soybean output this year marginally lower at 118.15 lakh tonnes vis-à-vis 119.89 lakh tonnes as in last year. Late rains helped improve the yield and proved beneficial to the late sown crop. The output of total kharif edible oilseeds is expected to decline from 224.07 lakh tonnes to 196.64 lakh tonnes, largely due to sharp decline in the output of groundnuts.

On the price front, soybean prices in the domestic markets rose from Rs. 3483.50 per quintal in January 2014 and reached a high of Rs. 4855 per quintal towards April end as unseasonal rains damaged the crop significantly. But from May onwards, taking cues from overseas markets,  prices started to decline. A sharp drop in soy meal exports from India, due to bearish sentiments in the global markets and gradual pickup in sowing, added to the downside pressure. Prices on the NCDEX futures touched Rs. 2871 per quintal in October, the lowest since July 2013.

In the global markets, the US is poised for yet another year of record output. The USDA pegs soybean output at 106.87 million tonnes, up 14.5 percent on a year-on-year basis. The total area covered under soybean had increased 8.6 percent to 33.752 million hectares. Good rains and favorable climatic conditions in major soybean growing regions, especially in the Midwest, have helped boost the yield.

Planting of soybean has commenced in Brazil and Argentina, the world’s second and third largest producers. The initial targets from various agencies forecast record sowing and output from both the nations. The USDA had forecasted soybean output in Brazil and Argentina at 94 million tonnes and 55 million tonnes, compared to 86.7 million tonnes and 54 million tonnes respectively last year. However, dry weather and drought fears in the soybean belts of Brazil have led to delay in sowing and may bring down the total acreage, playing a spoilsport.

Soybean prices on the CBOT gained from 1260 cents per bushel in January 2014 to 1536 ¾ cents per bushel in May. Thereafter, prices declined sharply to 904 cents per bushel in the start of October, the lowest levels since February 2010. Higher sowing, favorable climatic conditions and expectations of a record crop have been attributed as the main reasons for the sharp decline in the prices. Prices on the CBOT have recovered significantly from lower levels in the last couple of weeks due to slow harvest, rains and strong export demands for soybean and soy meal.

India is a significant exporter of soy meal in the global markets. But higher domestic prices and lower availability due to tight supplies pushed up the prices. Also cheaper soy meal from other leading exporters, viz. Brazil and Argentina in the markets led to a drastic fall in export demand from India. 

Another important factor that led to a decline in India’s soy meal exports was the lifting of trade sanctions on Iran imposed by global economic powers. Iran stopped purchasing soy meal from India and looked to South America for its requirements. India’s soy meal exports in the current financial year (April till September 2014) declined sharply 87.3 percent to 111,027 tonnes, compared with 873,481 tonnes during the corresponding period last year. Going forward, soybean prices are expected to recover from lower levels as demand for soy oil will lead to a significant rise in the demand for soybean. Lower output of domestic edible oils will lead to an increase in demand for soybean oil. Also, with the new crop entering the markets, there are expectations of revival of soy meal exports from India, which may also be supportive for the prices.

Currently Soybean December Futures which are trading at Rs. 3135 per quintal may move up to around Rs. 3350-3400 levels in the coming few weeks. The pressure of the new crop arrivals may, however, cap sharp upside movement in the prices. On the lower side, support may be seen around Rs. 3000-2900 per quintal.