Commodities

Data show tight supplies, not speculation, driving soyabean prices

G Chandrashekhar | Updated on April 22, 2021

Trade admits the domestic 2020-21 soyabean crop would at best be 100 lakh tonnes, far less than the government estimate of 137 lt

A strident rise in soyabean prices in the domestic market (to over ₹7,500 a quintal compared with minimum support price of ₹3,880) has upset the processing industry as it finds its profits squeezed. Some trade associations allege rampant speculation in the derivatives market; but a scrutiny of data suggests the trade bodies may be barking up the wrong tree.

The global and domestic market fundamentals causing the price rally are well known to all value chain participants. With the adverse impact of La Nina in the US, South America, Europe and closer home in South-East Asia, the entire oilseeds and oils complex is on fire.

Prices rise

Global vegetable oil prices have rallied to record elevated levels – soyabean oil above $1,300 a tonne; sunoil more than $1,600 and palm oil over $1,200. Importantly, Chinese demand for imported soyabean is projected at a record 100 million tonne this year to feed its burgeoning livestock.

To be sure, India is a major importer of vegetable oils (about 130 lakh tonnes valued at $10 billion or ₹75,000 crore annually). The current elevated world prices are reflected in our domestic market. Not just that by trade’s own admission the domestic 2020-21 soyabean crop would at best be 100 lakh tonnes (lt), far less than the government estimate of 137 lt. This reflects tight supplies amidst growing demand.

Overseas demand for soyabean extraction has been robust. From October 2020 to March 2021, soyameal exports have totalled 13.2 lt — a four-fold increase from 3.3 lt during the corresponding period in the previous year. Strong export demand for meal amid sluggish market arrivals of bean has pushed all the rates higher. Soyameal for export has moved from $470/tonne in October 2020 to test $600 currently.

Respecting a 2019 SEBI directive, all exchanges provide daily data of Open Interest (OI) positions of various participants. Information on hedger position is published by the exchanges on their website on T+1 basis.

Also, SEBI’s Integrated Surveillance Department tracks changes. In other words, information about hedgers and speculators positions on the exchanges is publicly available.

Yet, trade associations choose to ignore the extremely tight market conditions and publicly available data; but continue to blame the derivatives market for the price rise by alleging rampant speculation. Market data show otherwise. It is likely that trade bodies may be willy-nilly misguiding the policymakers.

Planted area may rise

Indeed, the current high prices of various oilseeds are sure to encourage growers to expand the planted area in the upcoming Kharif season starting June. No wonder, several FPOs this writer spoke with are happy with the current prices and want the market to continue to function normally. India Meteorological Department has forecast a ‘normal’ South-West monsoon for 2021.

Finally, price is the greatest incentive for growers and they are sure to respond positively. The government should keep off and do nothing to disturb the market forces that are operating currently. At the same time, key value chain participants — soyabean processors, large industrial users of feed, soyameal exporters — must learn to hedge their price risks on the derivatives exchanges.

The author is a policy commentator and agribusiness specialist. Views are personal.

Published on April 22, 2021

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