Their View. Soyabean may fall further before a reversal

Soyabean has been under pressure over the last one month. The soyabean futures contract has tumbled over 12 per cent following a series of factors like the forecast of a normal monsoon, weak demand and increase in arrivals.

Weak global prices on account of high supply amid increased output further suppressed prices. Forecast for a higher rainfall than what was expected (96 per cent average rainfall) earlier in April has improved the prospects of the domestic crops in 2017-18.

Thus, with expectations of increased arrival and waning demand for India’s soyameal, soyabean prices can slide further. The monsoon in India, weather and planting progress in the US, currency movements and the crop releases from Brazil need to be watched, going forward.

Favourable weather conditions helped the US to mark a record output of 117 million tonnes (mt) in 2016-17. But the production in 2017-18 is expected to drop to 115.8 mt despite a 7 per cent increase in acreage on account of lower yield. However, the planting progress may give a more realistic picture on the US production, going forward.

Brazil is also likely to witness a record output at 111 mt in 2016-17 against 96.5 mt in 2015-16. However, due to low market prices for the commodity, Brazilian farmers are hesitant to release their produce in the market. That would extend the period of export for the US and also provide some support to prices.

The USDA expects the global output to be a record 348 mt in the 2016-17 marketing year (MY). The consumption is estimated at 331 mt. That would mean a comfortable carry-over stock of 90 mt. Though the production is expected to come down by 3 mt in 2017-18, the effective supply of soyabean will remain at an elevated level owing to huge stockpiles.

China, which accounts for more than 60 per cent of global import, is expected to import over 7 per cent more soyabean in 2016-17 (YoY) on strong demand for animal feed and soyabean oil. China’s plan to reduce VAT for crushers will further incentivise imports from July onwards.

The normal monsoon after two successive drought years and better yield (2 per cent more than five-year average) have led the Soybean Processors Association to revise its production forecast up to 11.5 mt from the earlier estimate at 10.87 mt. India is expected to produce 60 per cent more soyabean in 2016-17 over 2015-16. This is likely to end the marketing year (September’17) with a carry-over stock of 1 mt as compared to 0.23 mt in 2015-16.

The early arrival of pre-monsoon rains has enhanced the prospects of good crops this year as well. Also, easing up of El Nino concerns will reduce the fear of crop damage. The USDA expects India to produce 11.5 mt of soyabean in 2017-18, same as 2016-17.

According to rough estimates from the market, 5.3 mt of total stocks is available in the country out of which farmers have over 4 mt. At present, the arrivals in the Indian markets varies between 100,000 and 140,000 bags (1 bag =100 kg). Improved output prospects on better weather forecasts and sluggish soyameal demand may force farmers to release 25-30 per cent more stocks before the sowing starts for the fresh season. That should push down the floor prices.

India’s total soyameal export was 0.92 mt in FY2016-17, up by 137 per cent (YoY). But the country is losing its export competitiveness gradually which might impact the upcoming shipments.

Soyameal export grew only 16 per cent in April’17 over March. Also, the falling prices of substitutes like maize (₹1,200-1,400 per quintal) vis-à-vis soyameal (₹2,300-2,500 per quintal) will hinder the demand.

One may expect global soyabean prices to trade steady, going forward. Restricted supply from Brazilian farmers and higher demand from China may keep the downside limited. But at the same time, good planting progress in the US and ample global supply, together with expectation of Brazilian crop release, will limit the upside.

However, the domestic scenario looks grim as the prospects of huge crop supply on forecast of better monsoon and easing up El Nino concerns would ensure adequate domestic availability. Similarly, increasing arrival pressure and loss of export price competitiveness of soyameal will limit the demand for soyabean, with adverse implications for prices.

Thus, a price correction of ₹150 to ₹200 can be expected before the bulk buyers enter the market. That may provide some support to soyabean prices and limit the downside.

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

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