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.

Sharp fall likely in Indian Soybean Market in July-August 2015

Indian soybean market is likely to witness sharp correction in near future in the light of following facts.

1. Increment in the sowing area  
2. Good Monsoon Rains till date
3. Significant fall in the Indian soymeal export during recent past

  

Let us evaluate each of these factors one by one.

1. INCREMENT IN THE SOWING AREA

 As per the data released by Ministry of Agriculture, sowing of soybean is running far ahead from the last year. The total sowing area under kharif oilseeds has also shown increment. Table given below shows the khaif oilseeds sowing progress till 25 June 2015. Sowing is likely to gather momentum in near future in July.

The net result of early sowing would be early harvesting somewhere during early September. That would start pressurizing prices in the market.

Thus market would start witnessing new crop arrival a little bit early as compared to last year that would result in to weakness in the market during near future.

Table Source: www.seaofindia.com

1. GOOD MONSOON RAINS TILL DATE

 The overall progress of monsoon has remained satisfactory till date at country level. However it is feared that during July and August some weakness might be seen in the monsoon progress.

The major sowing areas of soybean are whole Madhya Pradesh and Vidarbha and Marathwada regions of Maharashtra.

As per the Picture shown below of Rainfall distribution in the India, it is clear that during last one month, the Madhya Pradesh has seen Normal monsoon rains, Vidarbha region has seen excess rainfall while the Marathwada region has seen deficient rainfall.

So first step i.e. sowing of the crop is likely to complete successfully in these areas.  The crop would need fresh spell of rains on periodic interval till maturity. 

Picture Source: IMD, India

1. SIGNIFICANT FALL IN THE INDIAN SOYMEAL EXPORT DURING RECENT PAST

As per the press release dated 5 June 2015 of the SEA of India (www.seaofindia.com) :-

(a)    The export of oilmeals during May 2015 is reported at 83,221 tons compared to 169,607 tons in May 2014 i.e. down by 51%.

(b)   The overall export of oilmeals during April-May 2015 is reduced and reported at 265,859 tons compared to 418,052 tons during the same period of last year i.e. down by 36%.

(c)    Soybean crushing is very much reduced due to continuous disparity and high price of domestic market, thanks to heavy speculation in future market vis-à-vis lower realization for meal and oil affecting overall domestic availability of both oils and meals.

(d)   In spite of 5% Reward Rate under new Exim Policy and rupee depreciation, the export of soybean meal is at a historical low and reduced and reported just 18,017 tons in April and 14,046 tons in May 2015.

(e)    Also the domestic demand for oilmeals has reduced adding to the woes of the industry. Capacity utilization is at the lowest and many plants are close down due to disparity in crushing.

Conclusion:

• It is clear from the above three points that till demand does not improves and Indian industry does not get good export orders of soymeal in near future, it would not be possible for the buyer to buy soybean at higher prices in Indian market.
• Soybean sowing area is likely to increase this year as a result of good monsoon during June and till first week of July. This factor is also likely to put pressure on the market prices.
• This year, the fresh crop arrival would be a little bit early in the Indian physical market.

Technical View on Prices for short term [ for July-  Mid September 2015 Period]

Currently in Indian futures market, the soybean October contract is trading at Rs. 3300/quintal.

Soybean prices in Indian futures market are likely to fall by around 10 -12 % from current levels.

The bottom price for the season 2015-16 seems somewhere near Rs. 2900/quintal. This level might be seen by Mid-September to Early October 2015.

Sugar Market Plunges due to Excess Supply in India

There has been a sharp correction of around 17 % in the sugar futures prices in India since the start of the sugar marketing season (sugar marketing season starts from October and ends in September).

The Futures prices of NCDEX Sugar May Contract have dropped from Rs. 2860/quintal during October 2014 to Rs. 2370/quintal till date.

In fact, Traders were having fair idea about the production rise and situation of ample supply world over. They utilized every rise in making selling opportunities.

The market seems still in the grip of the bears in the light of the facts and figures which were released by the Indian Sugar Mills Association (ISMA) recently.

The important points of the Press Release are given below.

·        The sugar mills in the country have produced 221.8 lac tons of sugar during the current season up to 15^th March, 2015.  This is 28 lac tons higher than the production up to the corresponding period in the last season of 193.8 lac tons.

·        As on 15^th March, 2015, 476 sugar mills were still under operation, which were 409 mills last year at the same time

·        The Government has revised its sugar production estimates to 265 lac tons, as compared to the earlier estimate of 250 lac tons.  They had previously estimated a surplus of 14 lac tons and, therefore, allowed incentives to export this 14 lac tons as raw sugar. 

·        However, the global sugar prices fell at the same time mainly due to the massive depreciation of Brazilian currency in comparison to the US dollar, making sugar exports from Brazil even cheaper.  The fall in global sugar prices, therefore, have restricted raw sugar exports from India.

·        With higher estimations of the sugar production by the Government by 15 lac tons and lower expected raw sugar exports, the industry has requested for creation of 20 lac tons of buffer stocks.  It will help the industry with some cash flows to carry the extra sugar and will check distress sales by some sugar mills.  This 20 lac tons can then be used by the Government next season for its PDS requirements.

Source: ISMA, Press Release, 17 March 2015.

NCDEX SugarM May Contract