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:
- 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.
- Due to fall in the production, domestic soybean oil production has
also come down by around 19%.
- 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.
- Soybean oil imports to the India have increased by 173% during same
period.
- 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:
- Very low domestic production leads to excessively higher prices in
soybean; no matter world market is falling.
- 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.
- 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.
- Soon, India may become net importer of soybean as well as soymeal and
other meals if oilseeds production problems are not addressed adequately.
- 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.
