Commodity Analysis

Soyabean to remain under pressure

Radhika Merwin | Updated on January 16, 2018 Published on October 16, 2016

Increase in Indian output and global supplies will keep prices under check

With global soyabean output set to increase this fiscal, the pressure on soyabean prices in international markets is likely to continue. As a result, Indian soyabean prices, which have been sticky over the past year, are also likely to come under pressure.

After two years of drought affecting production and lifting prices higher in the domestic market, output from India is set to rise, albeit at a lower-than-projected rate due to floods in the top soyabean-growing State of Madhya Pradesh. Increase in global supplies will offset an otherwise rising demand for soyabean products, leading to accumulation of stocks, thus keeping soyabean prices under check in 2016-17.

Global production set to rise

Soyabean is one of the major oilseed crops in the world, accounting for about 60 per cent of oilseed production in 2015-16. About 86 per cent of the world’s total production is crushed for oil. The oil recovery is 17-18 per cent while the meal forms 80-82 per cent.

The US, Brazil and Argentina are the top three soyabean producing countries in the world, accounting for 83 per cent of the total world production in 2015-16. According to the US Department of Agriculture (USDA), the global production is expected to go up to 333 million tonnes in 2016-17 from 313 million tonnes in 2015-16.

Global ending stocks in 2016-17 are expected to rise which should keep prices under check.

According to the USDA, production in India is expected to go up from seven million tonnes in 2015-16 to 9.7 million tonnes in 2016-17. This is after it revised its estimate down after August.

The USDA reduced its forecast production from 11.4 million tonnes in August to the current 9.7 million tonnes on account of lower area sown and a lower yield forecast. Also, in Madhya Pradesh, excessive rainfall led to widespread flooding, diminishing crop yields, according to the USDA.

Experts in the domestic market too peg a similar estimate. As reported by the Agriculture Ministry on September 8, 2016, the total soyabean area decreased by 1.60 lakh hectares from 116.30 lakh hectares in 2015-16 to 114.70 in 2016-17. The production estimates here are close to 9.5 million tonnes.

Nonetheless, soyabean output is estimated to be 35-38 per cent higher than that in the previous year.

This will lead to an increase in soyabean crushing in India, to 7.6 million tonnes in 2016-17 from 5.87 million tonnes in 2015-16.

India trade picture

In India, soyabean is mainly used for crushing and thereby obtaining soyameal. Of the total soyabean produced in the country, 70-80 per cent goes for crushing and the remaining is used directly. While import of soyabean is negligible, a chunk of the country’s soya oil demand is met by imports. According to data provided by the Solvent Extractors’ Association (SEA), import of soya oil has nearly quadrupled in the last five years to 4.2 million tonnes in 2015-16.

However, in the past, there has been a good export market for Indian soyameal, particularly from South-East Asian countries, as this is non-genetically modified (GM) soyameal.

But in the last few years, exports have taken a hit due to higher prices of soyameal in the Indian market, compared to other international markets. According to SEA, as of August 2016, FOB/FAS Indian soyameal is quoted at $480 a tonne against Argentina origin soyameal CIF Rotterdam at $383 per tonne. Soyameal exports during April-August 2016 stood at 10,145 tonnes, 71 per cent down from last year.

Price outlook

The price of soyabean as any other commodity is broadly dependent on the demand and supply situation. As mentioned before, an increase in global output this year should keep prices under pressure. The CBOT soyabean did start to trend up in May and June this year on production-related concerns in Argentina. But prices have been down 6.5 per cent in the past two months as the outlook on global production improved.

In the domestic market, prices normally track the international market. The NCDEX soyabean contract (generic) has fallen about 12 per cent over the past two months and 17 per cent so far this year.

From about a peak level of ₹4,200 a quintal in April, domestic soybean prices have plummeted to about ₹3,051 a quintal. Domestic soyabean prices are also affected by soyameal prices. The bleak export outlook of soyameal can also keep its prices under pressure.

India imports a chunk of its soya oil requirement and hence, domestic prices track international prices. Soya oil price is also linked to the price movements of palm oil (a substitute to soya oil). The government has only recently lowered the import duty on refined palm oil to 15 per cent from 20 per cent. This will also keep the price of soya oil under pressure.

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