Rain in the soyabean growing belts of the US were a welcome respite after a drought like condition in the past two months. The upside rally in international soyabean prices, from November 2011 till April 2012, was largely due to crop concerns in other two major producing countries — Brazil and Argentina.

Dry weather conditions in the US, the largest soyabean producing country, led to heightened worries over supplies of the oil crop in the last few months. Prices of soyabean hit record highs in international as well as domestic markets.

Extensive dependence

India, although having a miniscule share of around four per cent in global soyabean production, is still the second largest consumer and importer of edible oil after China. Its consumption of around 17-18 million tonnes is not met through domestic production. It relies extensively on imports to fill this production-consumption gap. Therefore, imports make up 50-55 per cent of consumption. Palm oil holds a lion’s share of around 75-78 per cent in the total edible oil imports with soya oil import at about 12 per cent.

Domestic oilseeds prices have risen significantly during November 2011 to April 2012 on back of lower rabi oilseeds output that were expected to fall by around 10 per cent, apart from the firmness in international soyabean prices. On Indian commodities exchanges too, prices of soyabean futures witnessed gains of 65-67 per cent in tandem with spot prices.

Price correlation

It is pertinent to note that domestic prices have a high correlation with international price trends. In case of soyabean, correlation between the CBOT and the NCDEX future price is to the tune of 0.90 in the last one year. For soyabean oil, correlation of spot and future prices in domestic markets is almost 0.98 in the last one year and same holds true for last two months too.

With some stability in prices gaining ground in May this year, soyabean witnessed yet another rally from June with markets closely watching fundamentals for the new season in domestic and international scenario. Slow advancement of monsoon in our country with 29 per cent below average rains during June led to a sharp drop in area under oilseeds cultivation.

Soyabean acreage was down by 19 per cent till July 12, versus same period last year. Unfavourable reports from the US with respect to downgrading of US crop conditions during the period added fuel to the uptrend. In the third week of July, prices touched new highs in both Indian and international markets.

Waning rain worry

With Madhya Pradesh, the soyabean bowl of India, getting normal rain, sowing of the crop progressed in full swing resulting to a four per cent increase in area under cultivation at 106.7 lakh hectares as on August 24. Reports of rains in the US Midwest since the beginning of August also helped to calm sentiments globally. Going forward and considering current IMD’s forecast of normal rain in September coupled with higher acreage now, soyabean output may remain the same or may improve slightly against 2011-12 season that will end in September 2012. Arrivals of new crop which shall commence from September-end, are expected to keep prices under check.

Beginning of harvesting season in the US will also exert pressure on soyabean in international markets, leading to a spillover effect on domestic prices.

Soyabean October futures, which is currently trading around Rs 4,050 a quintal, may consolidate in the range of Rs 3,930-4,130 in the near-term, while, during the peak arrival period (October), seasonality pattern may exert pressure and prices might touch Rs 3,800-3,730 levels.

(This article was published in the Business Line print edition dated September 2, 2012)
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