The Hindu Business Line : USDA oilseeds data sends bullish signals

Production vs yield
The USDA has put yields at national average of 39.6 bushels an acre versus 43.3 bu/acre last season.
The closing stocks for the year are also pared down to 450 million bushels, down from July forecast of 560 mbu.

Washington , Aug. 13

Already continually gaining strength because of all-round talks of rising biodiesel demand worldwide, the global vegetable oil market received another shot in the arm in the form of bullish crop report issued by the US Department of Agriculture (USDA) on Friday. The report is based on its first field survey for the 2006-07 crop.

On current reckoning, the US soyabean production is forecast at 79.7 million tonnes, down from last year's 84 mt. The latest forecast of 2.928 billion bushels is also lower than July forecast of 3.01 billion bushels.

Strong rally

Lower output forecast is the result of lower than expected yields in growing areas, the agency pointed out - national average of 39.6 bushels an acre versus 43.3 bu/acre last season.

The closing stocks for the year are also pared down to 450 million bushels, down from July forecast of 560 mbu.

All these should point to a potentially strong rally in the soya complex. However, doubts persist about the correctness of USDA yield forecast data.

Some market watchers are unwilling to buy the latest USDA numbers because August is the most critical month for soyabean - a month that can make or mar prospects. Two third of the month is still ahead.

Some experts see a contradiction in the USDA raising corn yields and lowering soyabean yields.

There is also expectation that if crop-friendly weather prevailed during the rest of the month, the USDA might be forced to raise the soyabean yield number in its September report.

But there are other producer friendly factors already operating in the global vegetable oil market. For instance, global production of high oil content seeds (sunflowerseed and rapeseed) is forecast to be lower in 2006-07 compared to the previous year.

Palm oil demand

Also, demand for palm oil has been rising, primarily buoyed by biodiesel demand. A number of processing plants are said to be going on stream in the coming months.

Crops conditions in India though improved in recent weeks are far from normal or satisfactory.

No wonder, the Government decided to reduce the basic customs duty on palm group of oils by 10 percentage points to 80 per cent on refined palmolein and 70 per cent on crude palm oil.

Although the move will dent customs revenue, the effect on open market prices is unlikely to be considerable.

At best, it will help stabilise the market for some time and help arrest the upside to some extent. The impact of the move will be muted so long as the policymakers continue to turn a blind eye to rampant speculation that helps neither the grower nor the consumer.

Reduction in duty is an admission of rising prices, tightening stocks and less than satisfactory oilseed crop prospects. Speculators are fully aware of this.

The silver lining, however, is that for once the Government got the timing right (see cautionary notes in Business Line July 22 and August 4). While festival demand is kicking in, pipeline stocks are running low. As it often happens, a part of the domestic price decline will be neutralised by a firm up in overseas prices.