Sunday, 24 January 2016

Recent Weather Fluctuations can trim India’s Rapeseed-Mustard Production and spark the prices during 2016

Recent fluctuation in the temperature in many parts of North and Central India has worried the farmers as well as traders as it has lasted some unfavorable impact on some of the standing Rabi crops.

Here we analyze the likely impact on Rapeseed-Mustard as this crop is vulnerable to these fluctuations.



A.          Impact of High Temperature:

Possibility of Yield Reduction:

Above normal temperature seen during first fortnight of the January proved harmful in those areas where early/timely sowing of the crop was done and the pods were in the filling stage. Due to sudden rise in temperature, the maturing process started early which may result into lesser yield and lesser oil content.


Major Rapeseed producing state “Rajasthan” falls under this category. Above normal by 4 to 6oC over many parts of Rajasthan, Madhya Pradesh, Gujarat, Marathwada, Vidarbha, isolated pockets of Punjab, Haryana, Bihar, Jharkhand, Chhattisgarh, Telangana and North Interior Karnataka during the week 31st December, 2015 to 06th January, 2016.


B.           Impact of Sudden Drop in Temperature:

Possibility of Aphid Attach:

Now for the last couple of days the average temperature has come down considerably and severe cold wave is prevailing in many parts of the country.

Sudden drop in temperature along with fog invite the aphid attack on the Mustard crop. Thus the plains of Uttar Pradesh, Punjab and Haryana are more prone to the aphid attack. The possibility of aphid attack can’t be ruled out in these areas. The aphid suck the grain inside the pod. If timely chemical treatment is not done, then the yield may reduce substantially.


Possibility of damage to the crop due to frost also remains there during this period.

C.         Impact of Lesser Rains in North-Western India

Although Rapeseed - Mustard is a less water intensive crop but still slight rainfall or at least two light irrigations are required during the whole crop cycle.

In Majority of its growing states there is no rainfall till date. However in some parts of the MP some rains were seen during last week.


Map Source: IMD, India


D.          Impact of Hailstorm and heavy rains:

Any spell of excessive rains if seen during Feb/March localized or on vast part of a certain region may prove again dangerous to the standing crop as it may cause root rooting. Further, pod shattering may also result in to yield loss.

Further, hailstorm if seen in some patches may reduce the yield drastically of that particular area.

Now if light rains are seen during Feb/March, then it will be beneficial for the late sown varieties of the crop particularly in the Uttar Pradesh region.

However it is observed that during Feb/March almost every year Hailstorm and rain with high wind velocity is seen at isolated places in many parts of the country.

However, till date no such incidence is reported.


Production Assessment in the light of Recent Weather Fluctuations and Less Sown area:

It seems from the above analysis that there are chances of some yield reduction due to above mentioned reasons. The extent may vary from region to region. In certain areas the impact may be more visible while in other areas it may be negligible.

Rajasthan which is a major Rapeseed growing areas, the impact of sudden rise in temperature may be substantial on the yield. Further rains are also not seen in vast part of its growing regions. MP, Haryana, Western UP and Punjab may also witness some downfall in the yield.


As can be seen from the Table 1 that as on 12 Jan 2016, the sown area under Rapeseed and mustard is reported to be 62.76 lakh hectare which is also 3 lakh hectare less as compared to the last year.


Thus, the cumulative impact of less sown area and weather disturbance may reflect into lesser production this year. We expect that this year India may witness Mustard crop production somewhere near 52 lakh tons as compared to the last year’s figure i.e. 57.4 lakh tons which translates into 9% reduction in the production from the previous year.

Thus this year the production may remain lowest in the last six years. 




Price Outlook of Rapeseed-Mustard in Indian Market for 2016

This year the Rapeseed-Mustard (RMSeed) market is likely to remain bullish due to expectation of low crop production.

All the RMseed is consumed in domestic market and we are least affected of the international market sentiments in case of RMseed.  In the light of falling crude oil prices and high edible oil imports in the country, some short term decline may be seen in the prices but the overall long term outlook seems bullish.

The impact would be visible in the upcoming season. Usually the fresh crop arrival starts from late February in some parts of the country.

We expect that prices will start moving upward from February first week. On NCDEX the level of 3900-4000 can be a good buying level from long term point of view.

Friday, 1 January 2016

In Soybean: Don’t follow World Market when You Trade in India

During last few years, Indian oilseeds trading community has seen high volatility in prices while the world market trend remained more or less steady in one direction. Those who believe that it is the CBOT that dictate the market sentiments in many commodities went wrong in case of soybean when it comes to trade in India.


On the one hand where since last four years, the soybean Prices at Chicago Board of trade (CBOT) have seen continuous fall to the extent of 40% till this December, Indian soybean market has gained around 14%.



Figure 1 shows the change in production and prices in the Indian and world market. Since 2011-12 to 2014-15, the soybean production fell by around 14% in India resulting into continuous prices rise to the extent of around 14% during same period.

On the other hand the soybean production at world level has seen significant jump of around 33% during last 4 years resulting in to 40%  fall in its price.

Thus we have seen a complete divergence in the production and price behaviour of soybean in  India from the world market.

We try to identify and explain why Indian soybean prices remained immune to the world market sentiments. Let us have a look at Table 1.



Some Observations from Table 1:

  1. The soybean production keeps on falling for the straight 4th year. A production fall of 14% is seen in the last 4 years.This year (2015-16) too the production is likely to go down significantly. 
  2. Due to fall in the production, domestic soybean oil production has also come down by around 19%.
  3. Soybean meal exports to the various countries have fallen dramatically by around 83% in the previous 4 years. Year 2014-15 has proved to be a nightmare for the oilmeal export industry.
  4. Soybean oil imports to the India have increased by 173% during same period.
  5. World soybean production continued uptrend resulting into steady and consistent price fall in the world market. During last four years, the world soybean production rose by 33% while soybean prices fell by around 40%.

Thus, it is clear from the above facts, that despite bearish world market sentiments, Indian soybean market remained firm and in future too, overall sentiments are likely to remain positive with some intermittent fall owing to various other reasons excluding demand and supply.

In the Year 2015-16, the Indian soybean Industry experts feel that production may further decline and may remain near 87 lakh tons as against 91.7 lakh tons seen during 2014-15. Thus continuous shortfall in the production amidst increased domestic demand of soyoil and soymeal with continue to provide support to the soybean prices in India in medium term.

India impose very high import duty on oilseeds and oilcake (oilmeal) import into India to safeguard its own domestic industry. Currently the effective import duty on oilseeds and oilcake is 36.55 and 20.80% respectively in India.

Soybean is a rainfed crop grown in the Kharif season in India. Thus production fluctuates widely due to change in monsoon rainfall quantum and it's spatio-temporal distribution. Further the growing domestic demand by various industries like animal feed and FMCG companies keeps on supporting the prices of soybean in India.

Due to high domestic prices, the soybean processing Industry in India is passing through very tough time due to high disparity owing to high raw material cost. The Indian Industry has started loosing its export markets resulting into drastic decline in to soymeal export figures. The capacity utilization is at the lowest and many plants are close down or operating at very low capacity due to disparity in crushing and export.

The Solvent Extractors’ Association of India, in its press releases cites following main reasons of drastic fall in the soybean meal by India.  

1. High price of soybean in domestic market v/s lower realization for meal and oil resulted into drastic fall in crushing and export of soybean meal.
2. The export to Japan, Iran, Thailand, Indonesia, Taiwan and Vietnam drastically reduced due to disparity in export in these regions against severe competition from other origins including China and Argentina.
3. India lost Vietnam market for soybean meal due to stiff competition from other origins and increased availability from domestic crushing of imported soybean.
4. On wake of lifting sanctions, Iran shifted soybean meal buying from India to another origins. Currently India is out priced by US$ 100 against other origins in Iranian market.
5. Japan was big importer of Indian soybean meal being non GMO, however now started using GM soybean meal and buying from other origins.


On the edible oil import front, India’s import is increasing day by day as globally the prices of edible oil are historically low since 2008, and had affected the domestic players. The domestic oilseeds prices are high and the imports are quite cheap due to less import duty on the edible oils.


Lessons:

  1. Very low domestic production leads to excessively higher prices in soybean; no matter world market is falling.
  2. Domestic demand will grow day by day. Thus, till we don’t increase production or start importing soybean, the domestic prices are hard to come down significantly in long to medium term.
  3. Soybean meal export and domestic edible oil manufacturing industry may come into severe crisis if steps are not taken to improve domestic supply of soybean in a planned way.
  4. Soon, India may become net importer of soybean as well as soymeal and other meals if oilseeds production problems are not addressed adequately.
  5. Soybean prices are still rising in India, despite the fact that world markets are having ample supplies. Just imagine what will happen if some point of time world’s soybean production decline in any year. Prices will shoot like anything.

Thus, while trading in Indian soybean market, just have a look at it's own fundamental factors rather than blindly following world market sentiments otherwise possibility of going wrong is very high because INDIA DOES NOT FOLLOW WORLD WHEN IT COMES TO TRADE SOYBEAN.