Soybean Prices To Stabilize During Peak Arrivals

In the last one month, soybean prices of the most active November 2015 contract on National Commodities & Derivatives Exchange (NCDEX) have surged about 25 per cent to Rs 4,032 per quintal from Rs 3,226 per quintal.  This sudden surge in price may stabilize in the coming months during peak arrivals on weak meal exports and record soyoil imports.

Price Performance

Soybean prices during the kharif season have been on a rollercoaster ride. Soybean futures surged to a high of Rs 4,107 on June 2, then declined to a low of Rs 3,096 on August 6, and again rebounded to a high of over Rs 4,000 on October 20. The bearish sentiments during the start of the kharif season were due to the prospects for another bumper crop on the back of sufficient monsoon rains during June and July, coupled with reports of high carry overstocks. However, the prices have surged during the second part of September due to concerns about production based on reports of crop damage in Madhya Pradesh. The late surge in soybean prices is due to expectation of lower arrivals and good demand from traders and stockists.

In the international market, CBOT soybean prices were down about 14.4 per cent since its high in August. However, the prices have increased about 4 per cent since its low in September to USD 8.96 per bushel. This price swings reflect changing expectations about the size of the global and the US crop, uncertain US’ export prospects, and possible impacts of the strong El Nino phenomenon on world oilseed and vegetable oil production in 2016.

Higher Area-Lower Production

Sufficient rainfall during the start of the monsoon season (June-July) helped in planting record sowing in Madhya Pradesh and Rajasthan. This year, the soybean acreage increased by 6.35 lakh hectares (lh) or 5.8 per cent compared to last year’s sowing acreage. In the latest data released by Solvent Extractors Association of India (SEA), the area under soybean cultivation is 116.3 lakh hectares (lh) in the country compared to 109.34 lh last year.

Uneven distribution of monsoon rains and attack of pests on a major part of crops planted in Madhya Pradesh have affected soybean output this year. Madhya Pradesh, which is known as the soybean bowl of India, may produce 14.7 per cent fewer soybean at 44 lakh tonnes (lt) compared to 51.6 lt output last year. Meanwhile, Maharashtra and Rajasthan may produce 16 per cent or 3.8 lt higher and 2.6 per cent or 40 per cent higher production respectively compared to last year. According to Soybean Processors Association (SOPA), soybean production in the country may be down by about 4 per cent during 2015-16 to 86.4 lakh tonnes, compared to previous years’ revised estimates of 90 lt. 

Record Soyoil Import

During the 2014-15 marketing year (November 2014 to September 2015), the overall import of soyoil is reported higher by 48.8 per cent at 25.80 lakh tonnes (lt) compared to 17.33 lt in the same period previous year, according to the latest SEA report. Further, in September, the import of soyoil rose by 99 per cent year-on-year to 3.21 lakh tonnes (lt). Meanwhile, in August, the government hiked import duty on crude edible oil from 7.5 per cent to 12.5 per cent and refined edible oil from 15 per cent to 20 per cent to protect farmers’ and oilseed processors’ interest.  After the hike, soyoil imports have dropped by 28 per cent month-on-month to 3.21 lt in September compared to 4.5 lt in August.

Falling Meal Exports

Soy exports in the first six months of fiscal year 2015-16  declined 61 per cent to 42,743 tonnes from 1,11,027 tonnes in the year ago period as per the latest update from the SEA. However, after falling for five months in a row, soy meal exports on a month-on-month basis rose to 6,886 tonnes in September compared to 786 tonnes in August. 

Global Scenario

There is the potential for another record soybean harvest in Brazil. According to the Brazilian Institute of Geography & Statistics (IBGE), Brazil may produce a record 96.7 million tonnes (mt) of soybean this year, a 12 per cent increase over the total produced in 2014. As per the recent US Department of Agriculture (USDA) report, global ending stocks may expand to 85.1 mt from nearly 78 mt in 2014-15 while consumption is forecasted to increase about 7 per cent.  Moreover, global soybean production is pegged at 320.5 mt in the recent USDA report, higher by 1,54,500 metric tonnes or 0.5 per cent compared to the output of 2014-15.

There is evidence of strong demand for the US’ crop. The net soybean sales for the week ended October 15, 2015 was recorded more than 2 mt for delivery in 2015-16, up 43 per cent from the week before and 26 per cent from the previous four-week average. Moreover, the world’s highest importer of soybean, China, is estimated to produce 11.5 mt, a decline by 7 per cent to 11.5 mt due to lower planting area while imports are expected to increase by 2 mt to 79 mt due to lower domestic production.

Outlook

In the coming months, the arrival of the new season crop will peak and may put pressure on the prices. Internationally too, better than expected US crop yields and forecast of good rains in Brazil may put further pressure on soybean prices. However, prices may gain periodically on strong export demand for US’ soybeans.  Domestically, lower soymeal export and record soyoil import will keep the prices in check during November and December and may drop to Rs 3,850 per quintal.

Strategy

Sell NCDEX Soybean December 2015 between 4,060-4,110, SL – 4,200, Target–3,850/3,650 (CMP-4,060).

Disclaimer: The above opinion is that of the author and for reference only.