Commodity Analysis

Problems of plenty for soyabean

Radhika Merwin | Updated on January 15, 2018 Published on March 19, 2017

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Global stocks are expected to rise by around 8 per cent in 2016-17

The pressure on soyabean prices has deepened after the US Department of Agriculture (USDA) recently raised its global production forecast for the 2016-17 fiscal, driven by higher output estimate for Brazil. In India too, production is set to rise sharply, after two years of drought.

Over the past year, soyabean has lost about 24 per cent, after peaking at ₹4,200/per quintal at the beginning of the year. There was a slight uptick in November but prices have come under renewed pressure of late, falling nearly 9 per cent so far in 2017. Increase in global supplies to some extent is balanced by a rising demand for soyabean. A higher year-ending stock, however, is likely to keep soyabean in the bear’s grip for a while.

Global output up

The US, Brazil and Argentina are the top three soyabean producing countries in the world. According to the USDA, global production is expected to go up from 313 million tonnes in 2015-16 to 341 million tonnes in 2016-17.

The current fiscal estimate was revised in March, from the 336 million tonnes earlier. This revision came on the back of the USDA raising its outlook for Brazil’s 2016-17 crop from 104 million tonnes to 108 million tonnes.

Global stocks are expected to rise by around 8 per cent in 2016-17, to 82.8 million tonnes, from 76.6 million tonnes in 2015-16.

In India, a turnaround in output was well on the cards, after two years of drought. But the crop forecast for the 2016-17 fiscal has yo-yoed widely through the year. Not long ago, the USDA had pegged down India’s output forecast for 2016-17 from 11.4 million tonnes (in August) to 9.7 million tonnes (in September).

In December, however, estimates were revised up to 11.5 million tonnes. The USDA continues to retain its forecast. This implies a huge jump of about 61 per cent from the previous year’s output of about 7.1 million tonnes.

The estimates of domestic market experts concur with the sizeable rise in output, but estimates vary quite a bit. As reported by the Agriculture Ministry on February 15, 2017, production for 2016-17 (2nd advance estimates) will rise to 14.1 million tonnes from 8.57 million tonnes (final estimates) in 2015-16. This implies over 60 per cent growth in output for the current fiscal.

The Solvent Extractors’ Association, however, estimates a crop output of 10.5 million tonnes for 2016-17, up from 7.2 million tonnes in 2015-16, implying a little under 50 per cent growth.

Strong demand

Robust Chinese demand has led the USDA to up soyabean import forecast for China by 1 million tonnes to 87 million tonnes for 2016-17, compared to 83.2 million tonnes in 2015-16. However, US export this year faces stiff competition, following larger exportable supplies from Brazil. While the USDA recently revised down US exports by 0.68 million tonnes to 55.1 million tonnes for 2016-17, it raised Brazil exports forecast by 1.5 million tonnes to 61 million tonnes for the current fiscal.

However, according to the USDA’s recent release, the growing demand in the Vietnam livestock and aquaculture sector has encouraged Vietnam imports of soyabean and soyabean meal. This provides opportunities for US soyabean producers.

In India, soyabean is mainly used for crushing purpose to get the meal. Of the total soyabean produced in the country, 70-80 per cent goes for crushing and the remaining is used directly. There has been a good export market for Indian soyameal, particularly from South-East Asian countries, as this is non-genetically modified (GM) soyameal.

However, in 2015-16, exports took a knock due to the higher price of soyameal in the Indian market when compared to other international markets, lowering India’s competitiveness. In 2015-16, soyameal exports fell by 41 per cent to around 3.8 lakh tonnes.

Over the past couple of months, though, exports have made a sharp comeback, thanks to decline in prices. According to latest data from the Solvent Extractors’ Association, soyameal exports during April 2016-February 2017 stood at 8,09,247 tonnes, more than double the exports seen during the same period last year.

FOB/FAS Indian soyabean meal is quoted at $363 per tonne as of February 2017, sharply down from $493 per tonne in April 2016. As of February 3, 2017, Argentina origin soyabean meal CIF Rotterdam quoted at $380 per tonne.

Price outlook

Higher global output will continue to put pressure on soyabean prices. Robust Chinese demand should, to some extent, ease the pressure and provide support to prices.

In the domestic market, prices normally track the international market. NCDEX soyabean contract (generic) has fallen 7 per cent over the past month. However, domestic soyabean prices are also affected by soyameal prices. An improving outlook for India’s soyameal exports, touching the 2-lakh-tonne mark, augurs well for soyabean demand. This should provide some support to prices. As the overall bearish spell lingers, soyabean can trade range-bound to negative in the coming months.

Published on March 19, 2017

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