Weather gods to soyabean’s rescue

Gurumurthy K | Updated on April 06, 2014




Damage caused by excess monsoon and the recent hailstorm have reduced the output

The soyabean futures contract on the NCDEX has rallied 55 per cent from the lows in July last year. In the past few months, projection of lower output from Brazil and Argentina following dry weather has helped prices surge.

Brazil’s share in global soyabean exports is about 40 per cent, while Argentina contributes 8 per cent.

However, in spite of the expected fall in production in South America, the US Department of Agriculture (USDA) expects global soyabean production to rise in the 2013-14 crop year ending September.

It has estimated production to increase by 6.7 per cent in 2013-14 to 285.4 million tonnes. This is only a tad lower than the earlier estimate of 287.7 million tonnes. This suggests that the impact of the dry weather could be temporary and further sharp rise in the soyabean price could be limited.

In India, soyabean production in 2012-13 is estimated to have been higher by 20 per cent.

But in 2013-14, there could be a 15 per cent drop in production (to 124.5 lakh tonnes) from the first advance estimates, says the Indian Agricultural Ministry.

Damage to the crop from excess monsoon rains and the recent hailstorm are cited as the cause for the lower output estimate. On the demand side, the USDA expects soyabean consumption in India to come down by a per cent to 112.5 lakh tonnes in 2013-14 from 113.5 lakh tonnes in 2012-13.

Though consumption is expected to come down slightly, lower production could keep domestic prices under pressure.


Long-term view: The long-term trend for the NCDEX soyabean futures contract is up.

The price has sharply recovered after tumbling about 44 per cent from the high of ₹5,064.5 in July 2012 to ₹2,838 in July 2013. Key long-term support is at ₹3,250.

The outlook will remain bullish as long as the contract trades above this level and it can target the previous high of ₹5,064 in the coming months.

Medium-term view: The medium-term trend is also up. However, there is only little room left for the contract to rise further. An important medium-term resistance is at ₹4,700 which could halt the rally.

A reversal from this resistance will drag the contract lower to ₹4,000. On the other hand, if the contract manages to breach ₹4,700, then it can move to ₹4,900.

The 100-week moving average currently at ₹3,667 is an important support. Only a decline below this level will turn the medium-term outlook bearish.

The subsequent target on such a fall will be ₹3,400.

Short-term view: NCDEX soyabean futures contract, which was trading in a sideways range between ₹4,150 and ₹4,350, witnessed a bullish breakout from this range last week. However, the contract has not gained enough momentum for a strong rally. If it can sustain above ₹4,350, a rise to ₹4,500 and ₹4,600 looks likely in the short term.

On the other hand, a decline below ₹4,350 can put the contract back into its ₹4,150-₹4,350 range once again.

Only a break below ₹4,150 will turn the outlook negative which looks less probable now.

The target on such a break will be ₹4,000.

Published on April 06, 2014

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