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.