The Hindu Business Line : Limited downside seen to high vegoil prices

"The old-crop fundamentals may be too tired at this stage to support a rally to new highs, but the cash market is likely to remain exceedingly tight, providing underlying support to prices," commented an analyst.

Mumbai , May 23

SOYABEAN oil prices in the last 10-12 days have declined from their season highs following the US Department of Agriculture (USDA) report which

forecast a record global oilseeds crop for 2004-05 with a significant rebound in the US soyabean output.

As a result, offers for export from Argentina have moved down below the $600 a tonne-mark and are currently quoted at $ 585-595 a tonne for June and July shipment.

But a look at the demand-supply requirements over the next four months (until next harvest) would suggest a very limited further downside for prices, but a strong potential for the upside.

The old crop fundamentals remain bullish, according to experts. What started as a US soyabean shortage sometime last September/October has now become a world soyabean shortage with weather and rust-induced crop losses in Brazil.

The latest estimate of world soyabean output in 2003-04 is 190 million tonnes (mt), down from 197.3 mt in the previous year. The US output in 2003-04 was 65.8 mt, down from 75mt of the previous year.

The overall global shortage of soyabean would mean an unusually large share of South American crop will be utilised over the next 4-5 months (until new crop supplies from the US are available) and stocks would be drawn down markedly.

This should keep prices well supported. An additional factor would be weather. If concerns develop in any of the major producing countries, prices could run-away.

After last year's experience of falling soyabean crop numbers over a period of time, players can only be expected to show more caution. Global economic recovery and an upswing in Asia are also seen as factors contributing to demand growth next year.

The over-heated soyabean complex might have cooled off for the time being on the basis of expectation of a significant increase in global oilseeds production in 2004-05 and a rebound in the US soyabean crop size; but consumers around the world and major importing such as India may not have much respite from high prices.

Downward movement in soya is seen impacting the palm complex.

The price differential between palm and soya oils is now narrowing, making the latter relatively more attractive for buyers such as India.

A downward revision in the tariff value for imported soyabean oil is necessary. It will put more pressure on palm prices and benefit India.