Soyabean prices to remain strong

Boosted by concerns over lower US yield, drop in Argentina and Brazil output

Soyabean has posted nine consecutive weeks of straight gains.

CBOT soybean remained in the range of $8.51-10.5/bu (1 bushel=27 kg) from September through early April this year — limited by record high global production in the last two years, and forecast of a bumper crop in 2016-17 in South America and the US. However, as production-related concerns started surfacing due to flooding in Argentina and drought in some parts of Brazil and Chinese demand remained supportive, prices moved up. Soyabean prices jumped from a low of $9.25/bu on April 8 to a high of $11.78/bu on June 10 — a gain of over 27 per cent. Prices closed at $11.34/bu on June 21.

Global soyabean production has been growing at a CAGR of 3.8 per cent for the last four years compared to consumption at 4.6 per cent. The USDA estimates global production at 323.7 million tonnes (mt) for the new crop in 2016-17 compared to 313.25 mt in 2015-16. Total consumption is estimated at 328 mt in marketing year (MY) 2016-17, up 3.14 per cent from 318 mt in MY 2015-16.  

Thus, global stocks are expected to fall to 66.3 mt in 2016-17 from 72.3 mt in 2015-16, and stock/usage (S/U=Stock/Consumption) ratio to 20 per cent in 2016-17 from 22.7 per cent in 2015-16, a positive signal for future price trends.

Developments in production hubs

Brazil, Argentina and Paraguay together account for 52 per cent of global soyabean production and 55 per cent of the world’s export of soyabean.

Soyameal prices touched an 18-month high in May over crop damage concerns in Argentina, the world’s largest soyameal exporter.

Soyabean prices in Brazil reached a new high last week amidst concerns over La Nina, lower-than-expected production prospects and firmer demand conditions in parts of centre-west and north-east. Brazil’s soyabean production for 2015-16 is estimated lower at 97 mt because of hot and dry conditions in parts of centre-west and north-east.

Further, the USDA foresees 103.4 mt of soyabean production in 2016-17 in the US compared to 106.9 mt in 2015-16 due to non-conducive warm weather. Its export in 2016-17 is projected at 51.7 mt, up 8 per cent from 2015-16 on increased demand from China.

China produces only 12 per cent of its soyabean requirement and relies heavily on imports to meet demand.

USDA estimates China’s soyabean import to touch 87 mt in 2016-17 — due to increased consumption of meat/protein foods and, in turn, for soyabean/soyameal — that is 5 per cent higher than in 2015-16.

The USDA also foresees global broiler meat production rising to a record of 89.65 mt in 2016 against 88.7 mt of 2015 — fuelling soyameal demand. Broiler meat import by China (the second-biggest chicken consumer) in 2016 is seen up 34 per cent to a seven-year high of 360,000 tonnes.

Pork imports by China are also expected to increase to an all-time record of 1.3 mt in 2016, 26 per cent higher than 2015 imports. Pork prices are expected to remain strong and this will help soyameal prices.

Domestic scene

India is the world’s fifth largest producer of soyabean. However, its production is driven by increased acreage and productivity continues to remain low at 0.67 tonnes/hectare compared to the global average of 2.6 tonnes/hectare. Because of drought, India produced 7.38 mt of soyabean in 2015-16 and 8.71 mt in 2014-15 compared to 12.18 mt in 2012-13.

The USDA forecasts 11.7 mt of soyabean production in 2016-17 on above-normal monsoon forecasts. However, a portion of soyabean area (10 per cent) is likely to be lost to kharif pulses in 2016-17. Last year’s soya acreage stood at 11.06 million hectares.

Export of soyameal suffered a major setback in FY 2015-16 due to uncompetitive soyameal prices. In FY 2015-16, India could export only 70,820 tonnes of soyameal, down 89 per cent from 2014-15 (659,593 tonnes). The export figure for April-May 2016 was 2,457 tonnes against 32,063 tonnes of April-May 2015, down a sharp 92 per cent.

Soybean prices are likely to remain strong on concerns about weather conditions in the US impacting yield as well as lower production in Argentina and some parts of Brazil. Higher Chinese demand from its animal feed industry will also provide support.

Reduced acreage in India is another booster for soyabean. However, the extent of upside looks limited on an above-normal monsoon forecast that may improve acreage and yield, and bleaker soymeal export prospects. Rising soyameal prices may also see users switch to other alternatives.

The writer is VP and Head, Agriculture, Food, and Retail, at Biznomics Consulting

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