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Wednesday, Aug 11, 2004

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US, India soya crop may be lower than forecast

G. Chandrashekhar

Mumbai Aug. 10

GOING by current indications, however incipient, history made in 2003 could repeat itself this year in the US, world's largest producer of soyabean; and if it does, the international vegetable oil market may witness another frenzied price behaviour with speculators having a field day at the cost of those with genuine underlying exposure.

It is becoming increasingly clear that the US will not after all harvest 80 million tonnes (mt) in October. Weather concerns that started to appear a few days ago are spreading and are said to be potentially negative for yields. There are reports of early cold weather beginning to move into the Midwest.

Based on the US Department of Agriculture (USDA) forecast of a record world oilseed production of 225 mt in 2004-05 (of which the US will contribute 80 mt), the global oilseed and vegetable oil market has grown progressively softer over the last three of months.

The reputed Oil World weekly from Hamburg recently placed the preliminary output number for the US at 78.7 mt and world production at 215 mt. The key to price movement is the extent of decline from the forecast level. "The question today is not whether there will be a decline in American soyabean production, but how much will the decline be", commented a trading house representative.

In 2003-04, world soyabean production was 169.1 mt, of which the US accounted for 65.8 mt.

Interestingly, the USDA had initially forecast domestic production of 78 mt; but aberrant weather during August and September last year drove actual production down considerably.

When the agency's monthly report reflecting the crop loss in the US was released in the second week of October 2003, many players who usually place great reliance on it were caught unawares by the sudden reduction in production estimate.

Currently, fund buying is keeping the soya complex well supported.

Ominously, there are no negative reports from China, which is headed to harvest a record 17.5 mt. It is for this reason, the next report of the USDA — scheduled for release on August 12 — is keenly awaited.

Meanwhile, Indian soyabean production is likely to suffer by as much as one million tonnes in 2004-05. Prolonged dry spell in July hurt germination.

Notwithstanding an expansion in area under cultivation, yields are expected to be lower than normal. The revival of monsoon towards the end of July has of course helped arrest further losses; but it not expected to undo the damage already suffered.

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