Reversing its previous gains, soybean prices corrected lower primarily owing to increased arrivals, strengthening domestic currency and feeble international market. Since August, prices in NCDEX futures were on a bullish track, posting gains of over 20 per cent. Taking cues from bean prices, soya oil too followed suit.

According to reports, farmers are bringing their previous crops to the market as current year production is set to rise significantly. Supplies from the new season have also started in some markets, influencing prices.

Extended breather

Summer crops such as soyabean must avoid heavy showers during the initial stages of its growing phase but require rains at regular intervals for healthy growth. The current monsoon outlook with occasional rains provides an extended breather to the crop as heavy rains earlier last month had damaged the produce.

However, domestic farmers have already taken advantage of the early good monsoon and expanded planting areas for summer crops by 4.3 per cent. According to traders report, Indian soyabean production in this season is projected to climb by 7 per cent due to an increase in acreage.

Meanwhile, traders are now demanding better price for their produce as the low minimum support price (MSP) is not enough to cover the production cost. According to farmers, the production cost of soyabean is around Rs 3,320 a quintal while the MSP is only Rs 2,560.

Little change in forecast

Global production forecast of soybean for the season is almost unchanged as better crop forecast in Brazil and Paraguay mostly counteract a drop in output from the US, Canada, Russia and China. The US Crop forecast for the year 2013-14 period is estimated at 3.149 billion bushels by the US Department of Agriculture (USDA), down 106 million due to lower yield anticipation.

Soyabean acreage in Brazil has risen by almost 4 per cent this year in anticipation of weak domestic currency which could mean better incentive for farmers. According to USDA forecast, current year’s output from Brazil is estimated to be a record 88 million tonnes (mt), an increase of 3 mt on increased area. At the same time, Chinese production is likely to drift down owing to lower yields as a result of excess rainfall and flooding in the northeast parts of the country.

Sentiments in soya oil too look frail. In the domestic market, prices wiped out its previous gains and the NCDEX October futures are trading near Rs 650 a quintal in the futures market.

A good production of soyabean in overseas market has led to a drop in international prices and a strong Indian rupee has curtailed rallies in the counter. Increased usage of US soya oil for bio-diesel fuel along with food sector demand may support prices in the overseas market. Domestically, a probable rise in import duty on refined edible oil to 10 per cent from the current 7.5 per cent is likely to shore up domestic prices later.

At the same time, enduring market conditions are not favourable for a major recovery in both bean or oil prices. Looking ahead, Rs 655-650 levels might act as a stiff support level for the NCDEX soya oil in the immediate-term. A break below this level would take prices lower to Rs 630 or even lower. Positive sentiments would be seen only on a close above Rs 690. Soyabean spot prices may remain within Rs 3,400-3,600 range , and break on either sides along with volumes will provide fresh directional moves.

(The author is Whole Time Director, Geojit Comtrade Ltd. The views are personal)

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