Good days ahead for soybean

Domestic market looks stable, anticipating likely government support

Soybean could soon witness a recovery on renewed hopes of China resuming purchases and the government support that may come in the run-up to crucial State and general elections in 2019.

However, the worst appears to be over for the crop, and only another bumper crop output can make the prices turn southwards. Monsoon, no doubt, will continue to play a key role .

According to the Soybean Processors Association of India (SOPA), 8.35 million metric tonnes (MMT) is the production estimate for the oil year 2017-18 (Nov-Oct) compared with 11.5 MMT a year before. After meeting the demand, India will be left with a stock of approximately 2 MMT.

That will be a little over what is needed to meet the demand for another three months, before the new season soybean starts arriving from October onwards.

If the country witnesses timely and adequate rainfalls leading to increased acreage, the governments of major soybean-producing States (Madhya Pradesh, Rajasthan and Chhattisgarh) will try to provide support to the prices like, how Madhya Pradesh did last year through its Bhavantar Bhugtan Yojana. Though the scheme was not much of a success, both the Central and State governments would want to do so on the back of the upcoming elections.

The crop relies heavily on soybean meal (used as cattle feed in poultry and pork industries) for its demand, and the export of soybean meal has encountered a dip close to 40 per cent in May 2018 over April. To make matters worse, Bangladesh has removed its import subsidies on soymeal, dampening export prospects.

Indian exporters expect the overseas demand for soybean meal to fall to half of what was achieved in 2016-17 due to lack of price competitiveness and diminishing preference for non-GMO soymeal, in which India has an upper hand.

A bleak demand of soybean meal will continue to be a limiting factor, but high import duty on soy oil (35 per cent) will incentivise crushers to increase their purchase of soybean, which can offset the downside to some extent.

Global demand

CBOT (Chicago Board of Trade) soybean futures have been trading in range for the past 12 months due to enough supplies and unsupportive demand. China’s trade sanctions on US soybean also led to sharp corrections between March andMay. However, the easing of the trade rift between the US and China may provide support to demand in future.

The Iowa Soybean Association expects an increase of 5-10 per cent in soybean exports after China agreed to increase its purchase of US farm products by 35-40 per cent. However, there still remains some doubt, as the second round of talks between the two nations ended with no specifics announcements by either side. Besides, weather and trade issues will dominate the global price movements going forward.

The latest USDA (United States Department of Agriculture) demand-supply projection report reflects an increase in soymeal consumption, and estimates the closing stocks of soybean to reduce by 6 per cent average from 2016-17 to 2018-19.

Rising global demand, driven by high soymeal usage and reduced supplies from Argentina and Uruguay, is likely to provide support.

Outlook

To conclude, soybean prices are likely to trade around the current levels, or may move upwards, subject to key triggers either from weather disturbances or the smoothening of the trade talks between the US and China.

The domestic market at present looks stable, poised for recovery, anticipating the likely government support. However, the advancement of monsoon needs to be tracked.

Moreover, comfortable crop supplies will put a ceiling on the upside.

The writer is Vice-President and Head of Agriculture, Food and Retail at Biznomics Consulting.

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