Fear and Greed Push Soybean Prices in India

It is amazing to see the soybean market movement in the Indian physical and futures market during last 15 days. The futures and physical market prices during last fortnight have increased by around 22 and 14 % respectively in India.

As per the Indian government estimates, the soybean production during 2014-15 is estimated to remain at 10.53 million tons as compared to 11.86 million tons during 2013-14, down by around 11.21%. However, the trade sources say that the production is far less than the government estimates due to deficit monsoon this year.

Usually, soybean fresh crop arrival starts in the first week of October in the India’s biggest soybean producing state i.e. Madhya Pradesh and prices usually remain low during first fortnight of the October month. Thereafter they start increasing due to reduced arrivals and increased demand.

This year, many parts of the country including parts of Madhya Pradesh and Maharashtra witnessed early monsoon rains thus sowing was also done a little bit early consequently the market was expecting considerable increase in the fresh crop arrivals during last fortnight of September and early October.

Sharp Decline in Market Arrival leads to Spark in Prices

Let us examine why prices have seen such a significant jump in prices in a very short span of time.

The market arrivals and prices in the three major soybean producing regions of the Madhya Pradesh namely Indore, Ujjain and Dewas are examined and the answer is quite clear. [the data were taken from http://agmarknet.nic.in/]

In Indore region the soybean arrivals during 1-8 October have declined by around 10% as compared to the period of 24-30 September. This extent of arrival decline varies between 35 to 47% in few mandis.

The soybean market arrivals in the Ujjain region have declined drastically by 48.68 % during 1-8 October as compared to the 24-30 September.  The extent of this decline was as high as 85% in Mahidpur mandi.

However, in Dewas region, the soybean arrivals have seen considerable increment in many mandis. However Dewas mandi has seen slight decline in market arrivals.

Impact of Less Arrivals

Due to sudden and significant decline in the fresh crop arrivals, a panic buying by the traders and stockiest is seen in the market. This has led to a jump in the soybean prices in the physical market.

The immediate impact is seen in the futures market too where the hedgers and speculators both are believed to have built good quantity of buying positions in anticipation of further rise in prices due to less arrivals.

Thus GREED of the suppliers of the soybean by reducing supply in anticipation of further price rise and FEAR of the price rise by the actual consumers have suddenly spurt the prices of soybean in such a short span of time. The speculators have further aggravated the situation.

However, the current market situation is quite unsustainable, and market forces of demand and supply with sooner or later adjust the prices which will be sustainable in long run. 

Currently market is trading in overbought region and possibility of sudden price fall can’t be overruled.

A cautious trade is advised.

A study on seasonality in Imports of Soyoil. Will prices further fall in India till October 2015?

How soybean oil market is likely to behave in India in near future? What is the current soybean sowing progress? What is the current supply situation of soy oil? What has been remained the pattern of imports in India during a marketing season? What has been the import price behavior during various months of a marketing season? What is the current supply and demand scenario of the world soy oil market? The current study tries to find out the answers of the above questions on the basis of some empirical analysis.

New edible oil marketing season starts every year from November and end in October. There are still 3 months to start of new season.

We would examine how prices are likely to behave till then.

A.     Latest Sowing Progress of Kharif oilseeds crops in India.

As per the latest Indian government estimates, the total sown area under kharif oilseeds as on 31^st July is 148.52 lakh ha. Area coverage is higher by 15.7 lakh ha. under Soybean from the normal sown area as on 31^st July. Soybean is sown at 104.81 lakh ha as compared to 89.10 lakh ha normal sown area.

In the monsoon season, cumulative Rainfall for the country as a whole during the period 1st June to 22nd July, 2015 was 7% lower than Long Period Average (LPA). Rainfall (% departure from LPA) in the four broad geographical divisions of the country during the above period was higher by 6% in North West India and lower by 6% in East & North East India, 13% in Central India and 12% in South Peninsula.

The monsoon deficiency is more in the east MP and Maharashtra regions of India which may create problem to the soybean crop if rains do not cover up during August month.

As of now situation seems under control so far as soybean crop is concerned.

B.    Stock Position at Port and in Pipelines :

As per the statistics released by SEA of India-

• Current stock of edible oils as on 1st July, 2015 at various ports is estimated at 610,000 tons (CPO 300,000 tons, RBD Palmolein 90,000 tons, Degummed Soybean Oil 80,000 tons, Crude Sunflower Oil 125,000 tons and 15,000 tons of Rapeseed (Canola) Oil and about 1,570,000 tons in pipelines.
• India’s monthly requirement is about 16.0 lakh tons against which currently holding stock over 21.80 lakh tons equal to 41 days requirements.

Thus the current stocks are ample to meet the near future demand of the country. The import is likely to improve in this quarter as well as importers would like to take advantage of lower prices.

 C.    Seasonal behavior in Soybean Oil import in India

Table 1 presents the trend in the soydegum (crude soybean oil) import by India during an edible oil marketing season [November to October] for a period of last 5 years.

For the sake of more simplicity and clarity we have divided the 12 months of the whole marketing season in to 4 quarters. The first quarter (Nov-Jan), second (Feb-April), third (May-July) and forth (Aug-Oct).

Observations:

• The soydegum import has remained LOWEST during FIRST QUARTER i.e between November to January during the period under study (last 5 years)
• There is gradual increment in its imports in the subsequent quarters.
• There is no uniformity in the quarter of Highest Import as the pattern has remained different in all the 5 quarters.
• There is general increment in the imports figures on “year on year basis”.
• During 2013-14, a sudden and significant jump in the soybean oil import is seen (79%).

Inference:

This is clear from the above analysis that India imports lowest usually during first quarter of an edible oil marketing season because its own new soybean crops starts coming in the physical market during October month and the arrival pressure is highest during October, November and December. Thus crushing plants get better parity prices from its own soybean rather than imported crude soybean oil.

Thereafter a lot depends up on the local availability of the soybean, oil availability from other substitutes like groundnut oil, cottonseed oil and rice bran oil etc. The scarcity of the substitute oils spark the import of edible oil in the form of other edible oils mostly soybean oil or crude palm oil. This situation varies from year to year. Thus the pattern in the highest import quarter is not uniform in the years under study.

 D.   Import Price Behavior of Soybean Oil in India

Table 2 depicts the trend in the average import prices of the soy degum in various quarters of a marketing season during past 5 years.

Observations:

• The lowest import prices have been seen either in the last quarter or first quarter of the marketing year.
• There is no clear trend in the period of highest prices.
• During year 2010-11 and 2011-12, the import prices showed the increasing import price trend in the subsequent months.
• However from 2012-13 onwards the trend reversal is seen. i.e highest prices are seen the first quarter i.e between Nov to Jan period, later on prices have seen a declining trend in the far months.
• The last quarter of the marketing season i.e. Aug-Oct period has always seen higher prices as compared to the first quarter of the marketing season i.e. Nov-Jan during last 5 years.

Inference:

The soybean oil availability usually remain high during last quarter (Aug-Oct) due to ease in supply from US which is one of the biggest producers and supplier of the soybean oil in the world market.  Also during first quarter the soybean oil supply from the domestic production remain high in India and China.

Thus due to better supply in the world market during last quarter and high domestic availability in the world’s top most importers i.e. China and India during first quarter keeps international soybean oil prices under check. This is the major reason why the prices have made their lows during either last quarter or first quarter of the edible oil marketing season.

Again in the subsequent months, the supply pressure eases in the world market and many other factors come in to play which keep on changing thus no uniform pattern is found in the period of highest months.

E.   Current Demand & Supply Scenario in the World Soybean Oil Market

Table 3 highlights the current soybean oil market dynamics and gives the clear idea about the current and prospective demand and supply condition of the world market. (Data Source: USDA)

Observations:

For the edible oil marketing year 2015-16, the world production and supply of the soybean oil is likely to increase by 4 and 5 percent respectively as compared to 2014-15.

India’s soyoil production and supply is estimated to improve by 24 and 12 percent respectively for 2015-16.

Its consumption is also estimated to increase by around 12% during coming marketing season.

Major soyoil suppliers like Argentina, Brazil and United State are entering the new International edible oil marketing season beginning from October 2015 with significantly high beginning stocks falling in the range of 25, 25 and 19% respectively.

Inference:

On the basis of the above statistics, the supply situation seems quite comfortable in the world market.

Soy Oil Price Outlook for the current Quarter (Aug 15-Oct15) for Indian Market.

On the basis of the above fundamental analysis we will try to reach out at some conclusion regarding further price movement in the Indian soy oil market.

Let us again quickly SUMMARIZE the major points.

1. The sowing progress of kharif oilseeds including soybean in India is quite satisfactory --------- A bearish market sign

2. The current stock position at the Indian ports is also indicating that stocks are enough to meet the current demand. There is no major festive or marriage season demand during August/September months --------- A bearish market sign

3. Imports have remained generally on higher side during last quarters and least during first quarter of the marketing season  --------- A bearish market sign

4. Import prices have remained lowest during last quarter or first quarter during a marketing season --------- A bearish market sign

5. World market supply seems quite comfortable to meet the current and near future demand --------- A bearish market sign

Thus the above analysis indicate that market is likely to correct further during August to October period. The biofuel demand is also low due to weak international crude oil prices which will further put pressure on the soy oil market. The continued strength in the US dollar Index is also likely to pressurize the US commodities prices including soybean and soy oil in the near future resulting in to weak market sentiments. 

Technical Levels of NCDEX Soy oil Market

Soy Oil : NCDEX
Trend	Support 1	Support 2	Resistance 1	Resistance 2
Down	528	496	577	591

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Sharp fall likely in Indian Soybean Market in July-August 2015

Indian soybean market is likely to witness sharp correction in near future in the light of following facts.

1. Increment in the sowing area  
2. Good Monsoon Rains till date
3. Significant fall in the Indian soymeal export during recent past

  

Let us evaluate each of these factors one by one.

1. INCREMENT IN THE SOWING AREA

 As per the data released by Ministry of Agriculture, sowing of soybean is running far ahead from the last year. The total sowing area under kharif oilseeds has also shown increment. Table given below shows the khaif oilseeds sowing progress till 25 June 2015. Sowing is likely to gather momentum in near future in July.

The net result of early sowing would be early harvesting somewhere during early September. That would start pressurizing prices in the market.

Thus market would start witnessing new crop arrival a little bit early as compared to last year that would result in to weakness in the market during near future.

Table Source: www.seaofindia.com

1. GOOD MONSOON RAINS TILL DATE

 The overall progress of monsoon has remained satisfactory till date at country level. However it is feared that during July and August some weakness might be seen in the monsoon progress.

The major sowing areas of soybean are whole Madhya Pradesh and Vidarbha and Marathwada regions of Maharashtra.

As per the Picture shown below of Rainfall distribution in the India, it is clear that during last one month, the Madhya Pradesh has seen Normal monsoon rains, Vidarbha region has seen excess rainfall while the Marathwada region has seen deficient rainfall.

So first step i.e. sowing of the crop is likely to complete successfully in these areas.  The crop would need fresh spell of rains on periodic interval till maturity. 

Picture Source: IMD, India

1. SIGNIFICANT FALL IN THE INDIAN SOYMEAL EXPORT DURING RECENT PAST

As per the press release dated 5 June 2015 of the SEA of India (www.seaofindia.com) :-

(a)    The export of oilmeals during May 2015 is reported at 83,221 tons compared to 169,607 tons in May 2014 i.e. down by 51%.

(b)   The overall export of oilmeals during April-May 2015 is reduced and reported at 265,859 tons compared to 418,052 tons during the same period of last year i.e. down by 36%.

(c)    Soybean crushing is very much reduced due to continuous disparity and high price of domestic market, thanks to heavy speculation in future market vis-à-vis lower realization for meal and oil affecting overall domestic availability of both oils and meals.

(d)   In spite of 5% Reward Rate under new Exim Policy and rupee depreciation, the export of soybean meal is at a historical low and reduced and reported just 18,017 tons in April and 14,046 tons in May 2015.

(e)    Also the domestic demand for oilmeals has reduced adding to the woes of the industry. Capacity utilization is at the lowest and many plants are close down due to disparity in crushing.

Conclusion:

• It is clear from the above three points that till demand does not improves and Indian industry does not get good export orders of soymeal in near future, it would not be possible for the buyer to buy soybean at higher prices in Indian market.
• Soybean sowing area is likely to increase this year as a result of good monsoon during June and till first week of July. This factor is also likely to put pressure on the market prices.
• This year, the fresh crop arrival would be a little bit early in the Indian physical market.

Technical View on Prices for short term [ for July-  Mid September 2015 Period]

Currently in Indian futures market, the soybean October contract is trading at Rs. 3300/quintal.

Soybean prices in Indian futures market are likely to fall by around 10 -12 % from current levels.

The bottom price for the season 2015-16 seems somewhere near Rs. 2900/quintal. This level might be seen by Mid-September to Early October 2015.

Good beginning is half done: Indian Kharif crop sowing progress analysis

Kharif crop sowing in India gradually picks up due to good monsoon rainfall till date in country as a whole.

However monsoon is yet to gather momentum in many parts of north and north –western India.

The latest data released by the Ministry of Agriculture, the kharif crop sown area has crossed 165 lakh hectares so far as compared to 134.18 lakh ha at this time last year.  Remarkable progress is seen in case of Pulses and Oilseeds where area increment is far ahead as compared to the last year’s figures. In Pulses this increment is around 80% while in case of oilseeds around 427% increment is seen.

Rice and sugarcane area has seen marginal decline.

The sowing of different crops is underway and will continue till July end. If monsoon remains fairly active and its spatial distribution also remain good then country can expect better production.

This is a matter of great relief that in the commodities like pulses and oilseeds the sowing progress is good because India is import dependent in many pulses and edible oils.

Monsoon Progress:

Till date the Indian monsoon rains have remained good enough. It is clear that majority of the regions have received normal /excess rainfall during 1-28 June 29, 2015 barring a few regions of Uttar Pradesh.

The actual cumulative rainfall is also fairly above the normal rainfall for the country as a whole.

Now a lot will depend upon the further progress of the monsoon during crop growth stage.

Figures Source: IMD, New Delhi

Impact Assessment: Deficit Monsoon likely to hit hard on Crop Production and Commodity Prices in India

The latest forecast of Monsoon rains in India by the Indian Meteorological department has worried the Indian farmers as well as the consumers. The goodwill of the government is also on stake as it will have an uphill task to contain inflation if the forecast come true this year.

This article analyses the previous trend in the monsoon rainfall, changes in production of commodities and wholesale price index to gauge the likely impact on the common man.

First of all let us highlight the main features of the Latest Monsoon Forecast for India for 2015 which was released by IMD on 2^nd June 2015.

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Ø Rainfall over the country as a whole for the 2015 southwest monsoon season (June to September) is likely to be deficient (<90 lpa="" of="" span="">

Ø Quantitatively, monsoon season rainfall for the country as a whole is likely to be 88% of the long period average with a model error of ±4%. [THAT MEANS AROUND 12% DEFICIENT RAINFALL]

Ø Region wise, the season rainfall is likely to be 85% of LPA over North-West India, 90% of LPA over Central India, 92% of LPA over South Peninsula and 90% of LPA over North-East India all with a model error of ± 8 %.

Ø The monthly rainfall over the country as whole is likely to be 92% of its LPA during July and 90% of LPA during August both with a model error of ± 9 %.

Ø  The rainfall over the country as a whole is likely to be 92% of its LPA during July and 90% of LPA during August both with a model error of ± 9 %.

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·            Thus, as of now, there is clear indication that this year’s monsoon is likely to remain deficient by around 12% on country level.

·            States like West UP, Punjab, Haryana, Rajasthan, Madhya Pradesh and Maharashtra are likely to be affected more than the other parts of the country. The deficiency may remain in the range of 15 to 10 percent in these states.

·            Last year too, country witnessed a 12% deficient rainfall. Thus this will be the second consecutive year which will witness less rains in the country.

·            This indeed is  a matter of worry despite the fact that the country has ample foodgrain buffer stocks with the government and Sugar supply is ample.  

Market react more on the future event rather than the current facts. Thus in spite of comfortable food grain availability, the possibility of commodities price rise has increased sharply.

Here we will see empirically what has happened during past years when such type of situation emerged. Based on that we will try to draw some conclusions about the likely production scenario and expected price rise for this year for some important commodities.

A :  IMPACT OF RAINFALL ON PRICES OF COMMODITIES

In India a vast part of the cultivable land is totally dependent upon monsoon rains. The monsoon rains are one of the most important factors that determine the production of crops. Thus supply and demand factors determine the prices.

Table1 and Fig. 1 present the trend in the rainfall departure and percentage change in the Wholesale Price Index in India for the last 9 years.

Observations:

1. From 2005 to 2008, not much deviation in rainfall from the normal range was seen. Thus prices in general (with some exception) have remained more or less stable or even declined in Cereals, Pulses, eggs, meats & fish, condiments and spices and sugar. However in Oilseeds the prices remained very high.
2. In Year 2009, where rainfall deficiency was very high (-21.8%), the immediate impact on prices of the commodities was seen. Prices of Cereals witness a moderate rise, while a significant jump in prices of Pulses, Vegetables, Eggs, Meat & Fish, Condiments & Spices was seen.
3. SUGAR PRICES ROSE EXCEPTIONALLY HIGH BY 48 %.
4. In year 2010 and 2011 monsoon rains recovered and were in surplus, the prices came down in cereals, pulses, and sugar.
5. In Year 2012, again prices rose substantially in Cereals, Pulses, oilseeds and sugar.

Inference:

• Thus prices of Cereals, Pulses, Oilseeds and Sugar have seen more and direct impact of deviation in the monsoon rainfall.

• The vegetables are perishable and nature and spices are mostly perennial, thus the impact of rainfall deficiency/surplus cannot be generalized. 

B: IMPACT OF RAINFALL ON PRODUCTION OF COMMODITIES

Table 2 presents the trend in the rainfall as well as the production of important commodities for the last 10 years. The %age change in the production with respect to the previous year is also given.

Observations:

1. The production years 2009-10, 2012-13 and 2014-15 have seen deficient monsoon rainfall in India. The extent of deficiency has remained in the range of  -21.8%,  -7.1% and -12% respectively in these years.
2. The production of Cereals, particularly Rice and Wheat, Pulses, Oilseeds and Sugar has seen significant decline in the deficient rainfall years. The extent of production decline has roughly remained in the range of 5-16% in these commodities.
3. In year 2014-15 which witnessed around 12% rainfall deficiency, the  significant production decline in Cereals, rice, wheat, Pulses and Oilseeds was seen.. Herver sugarcane area witnessed marginal increase.

Inference:

• Even a rainfall departure of around 10% from normal rains results in to production fall in the range of 5 to 15 Percent in many commodities.

• Given the fact that this year’s rainfall deficiency in the range of 12% (equal to last year’s range), we assume that production of cereals, rice, wheat, pulses and Oilseeds may reduce by -5. -4, -5, -10, -16 % respectively as compared to last year’s figure. [ i.e fall in production of these commodities may be at least in the same proportion as was seen during 2014-15].

• However, we expect that sugarcane production may decline by more that 5% as compared to last year’s figure because this crop requires more water and is largely grown in the North-west UP and Maharashtra where the expected monsoon deficiency is around 15%.

  

Conclusion:

• The agricultural commodities production is expected to decline straight in the second successive year due to weak monsoon rains. The extent of production fall may vary in the range of 5 to 15% among various commodities including cereals, rice, wheat, pulses, oilseeds and sugar. This figure may further rise if the  monsoon deficiency range further increases in the June – september period.

• The prices of agricultural commodities are likely to increase substantially during 2015-16 period due to less production and increased demand.

• Oilseeds and Pulses seems more vulnerable in terms of price rise. If sugarcane area substantially reduce this year then Sugar prices will start witnessing improvement and sugar will emerge a major commodity which will witness significant price rise in 2015-16.