Commodity Call. Soyabean to trade steady

Normal rainfall this year after two consecutive droughts has brought back the expectation of bumper sowing and production of soyabean in India. This comes alongside better supply prospects in Brazil and the US, which has led to soyabean losing almost 25 per cent in the last six months — from ₹4,012/per quintal in May to ₹3,073/Q in November. However, it traded on a positive note mid-November onwards, fuelled by dry weather in Arge ntina, robust demand for US supplies from China, firm soya oil because of increased bio-diesel usage and improved soyameal export prospects.

For 2016-17, USDA has estimated world soyabean production at 338 million tonnes (mt) with 65 per cent of it coming from Brazil and the US. Global consumption is estimated at 330 mt leaving the year-ending stock at 82.85 mt, 7.3 per cent higher than last year.

Strong US export this year on the back of robust Chinese demand is likely to face strong competition from Brazil. This is likely to constrain soyabean prices.

Brazil is expected to produce a record high 102 mt in 2016-17 against 96.5 mt in 2015-16. Favourable weather conditions point towards early arrivals of new crop. With easing up of logistical issues, Brazil is expected to ship a record volume of 58.4 mt in 2016-17. If the weather remains supportive and harvests take place smoothly, which seems likely as of now, there will be cheaper and ample global availability of soyabean.

Soyabean planting is still on in Argentina which is expected to produce 57 mt in 2016-17 and if weather forecasts are accurate, then dryness in weather is likely to continue in the near term, turning the sentiment from steady to bullish.

So, the weather condition in Argentina will be a crucial factor in soyabean price movements.

China is expected to import a record 86 mt of soyabean compared to 83.23 mt in 2015-16 due to increasing demand for pork and other meat ahead of the country’s week-long spring festival.

China, the largest importer of pork, accounts for 25 per cent of the global trade.

The top suppliers are EU and Brazil. The global production of pork is forecast to rise 3 per cent, to a record 111 mt, driven primarily by Chinese demand after two years of successive decline that will keep demand for soyabean firmer.

Above-average crop yields due to favourable weather in key growing States are expected to lead to 11.5 mt of soyabean output in India, according to USDA, up 61 per cent from last year.

The Soyabean Processor Association of India pegs soyabean output at 10.87 mt while the government has pegged it at 14.22 mt.

In the week following demonetisation, arrivals in major markets plunged by over 80 per cent compared to average arrivals in the preceding week and farmers were forced to accept lower prices.

The government’s decision to hike soyabean MSP by ₹175 per quintal to ₹2,775 per quintal for the 2016-17 season has mostly been neutralised by cash crunch.

Soyabean arrivals have now improved as cash started to be pumped in. According to rough estimates, 25-28 lakh tonnes have arrived in the market. Another 85 lakh tonnes are still with the farmers. This huge quantity will definitely put pressure on future prices. A seasonal peak in prices seen normally in March-April may not happen this year.

Higher domestic prices made India’s soyameal uncompetitive in the international market in 2015-16 and India could export only one-tenth of what it exported a year back.

However, with decline in domestic prices recently, India was able to export 51,805 tonnes of soyameal in November this year.

Moreover, due to competitive export pricing, and robust soya oil demand, the prospects of soyameal exports look brighter in future. The USDA has doubled the estimate for India’s soyameal export to 1.8 mt in its December forecast.

A better export outlook for soyameal will provide the underlying support to soyabean demand.

However, the near absence of India’s soyameal from global markets in the last couple of years induced importers to import soyabean to crush domestically or switch to non-GMO soyameals. This will have implications for India’s soyameal export prospects.

Soyabean prices look to trade sideways with gains limited due to higher overall global output and better-than-expected output prospects in India.

However, competitive export pricing for soyameal, firm soya oil demand, robust Chinese buying, and weather concerns from Argentina are going to support prices. In future, crude oil prices and Trump’s actions on trade with China will be crucial.

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