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.