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.
