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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