A problem of plenty for soyabean

Weak export demand and low global prices to keep a check on domestic prices



Soyabean prices have been moving sideways over the last five months after a turbulent spell last year. A sharp surge in global production has led to excess inventories of the crop triggering a price correction.

According to data from the US Department of Agriculture (USDA), global soyabean production in 2013-14 (October to September) was 283.74 million tonnes, a 5 per cent increase from the previous year.

The USDA estimates global production will shoot up another 11 per cent to 315 million tonnes in the 2014-15 season. This surge in production is expected to result in inventory of 89.53 million tonnes by the end of the season. This oversupply in the global market is expected to keep soyabean price subdued.

Domestic Scenario

Export demand for soyabean meal (used as a feed ingredient) is a major driver of prices in the Indian market. Soyameal exports have dropped in the last one year. Data from the Solvent Extractors Association (SEA) shows that meal exports in the current financial year (2014-15) stand at 6.14 lakh tonnes as of February. This is a sharp 76 per cent lower when compared with the 25.59 lakh tonnes exported over the same period the year earlier.

There are two main reasons for the drop in exports. BV Mehta, Executive Director, SEA, says, “Indian soyabean meal is priced higher by at least $50. This is what has turned the importers’ focus towards cheaper avenues”. Secondly, “Iran, one of the major importers of Indian soyabean meal, has started importing cheaper meal from Brazil and Argentina after the sanctions on the country were removed” adds Mehta. In the current fiscal between April 2014 and February 2015, exports to Iran have fallen to 3.62 lakh tonnes, down 68.5 per cent compared with the year earlier, shows recent data from the SEA.

Export woes to continue

A strong or immediate revival in the Indian meal exports is not likely. Ankita Parekh, Research Analyst, Nirmal Bang Commodities, says, “Indian exports could take a further hit as fresh arrivals are set to enter the market now from the South American countries.”

What may also impact domestic soyabean prices is the increase in soya oil imports due to cheaper price. India’s soya oil imports have more than doubled to 6.83 lakh tonnes during the November 2014-February 2015 period from 3.39 lakh tonnes in the same period the previous year. “Cheaper imports will keep domestic soyabean price under pressure. The oil price has to go up to encourage domestic crushing which in turn can push the soybean price higher”, says Mehta. The other factor that could keep the prices under check is the lower demand from China. Prerna Sharma, Research Analyst, Emkay Global Financial Services says “Consumption in China which accounts for 60 per cent of the global demand is expected to remain subdued and grow at a much slower pace”.

Technical Outlook

Short term: Soyabean futures contract traded on the National Commodity and Derivatives Exchange has been range-bound between ₹3,300 and ₹3,500 since late December. It is currently poised near the lower end of the range at ₹3,345. A reversal from ₹3,300 in the coming days can keep the contract inside the range for some more time. However, the bias is bearish for the contract to break below ₹3,300. Such a break can drag it lower to ₹3,200 in the short term.

On the other hand, a strong break above ₹3,500 can ease the downside pressure and take the contract higher to ₹3,600. But such a rise looks unlikely as the key 200-moving average resistance is poised at ₹3,495.

Medium term The reversal from the October low of ₹2,871 seems to be losing steam. It suggests that the recent rally is just a corrective bounce of the overall downtrend that has been in place since May last year. Having said that, the medium-term outlook is bearish. The contract can revisit ₹3,000 levels in the coming weeks. A break below ₹3,000 can drag it to ₹2,880. It will also increase the risk of the fall extending to ₹2,700 over the medium term.

Traders with a medium-term perspective can go short on the contract. Stop-loss can be placed at ₹3,650 for the target of ₹2,900. Intermediate rallies to ₹3,500 and ₹3,600 if seen can be considered to accumulate long positions. The outlook will turn bullish only on a strong break above the 21-month moving average hurdle. But such a strong rise looks unlikely.

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