Commodity Analysis

Soyabean futures to move higher

Gurumurthy K | Updated on January 22, 2018 Published on October 04, 2015

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Hopes of demand revival after the China deal and lower crop estimates will fuel the rally

The soyabean futures contract traded on the National Commodity and Derivatives Exchange has surged about 10 per cent in the last two weeks to ₹3,540 per quintal.

The five-month-long downtrend in the contract has thus come to an end.

There are two triggers for this price rally. First, China signing an agreement last month to buy 13.18 million tonnes of US soyabean worth around $5.3 billion. In 2014, it had bought only 4.8 million tonnes of soyabean and paid $2.3 billion. The increase in buying by China improved market sentiment. Second, with the south-west monsoon ending with a 14 per cent deficit, there are worries over the supply in the domestic market.

Recent data from the Soybean Processors Association of India (SOPA) shows that 111 lakh hectares have been covered under soyabean in this kharif 2015 season, lower than the 116 lakh hectares estimated initially by the government.

Production is estimated at 86 lakh tonnes, down about 4 per cent from 90 lakh tonnes in the previous season. A lower crop output thus saw speculative buying in soyabean futures.

On the charts, the recent rally looks strong. There is a strong likelihood of the NCDEX-Soyabean futures contract extending this rally in the coming weeks.

Medium-term view

The soyabean futures contract recorded a high of ₹4,412 in May but tanked over 30 per cent to record a low of ₹3,062 in August.

Subsequent to this fall the contract had consolidated sideways between ₹3,000 and ₹3,400 for more than a month. The rally in the last couple of weeks has decisively broken this range above ₹3,400, thereby easing the downside pressure.

Also, the price action since July suggests the formation of a double-bottom reversal pattern. The neck-line support of this pattern is at ₹3,400.

These indicators show early signals of a trend reversal on the charts.

The key resistance to watch is ₹3,737 — the 50 per cent Fibonacci retracement level.

A strong break and a decisive weekly close above this hurdle will confirm the trend reversal. Such a break can take the contract higher to ₹4,000 and ₹4,300 over the medium term.

Inability to break above ₹3,737 can trigger a corrective fall to ₹3,400 initially.

A reversal once again from here will see the contract revisiting ₹3,700 levels. It will keep the bullish outlook intact.

But, further break below ₹3,400 will increase the downside pressure for the contract. In such a scenario, the danger of the contract revisiting ₹3,000 levels on the downside thereafter will increase.

Short-term view

The sharp 10 per cent rally in the last two weeks has eased the downside pressure for the contract. This rally has helped the contract to break decisively above the 100- and 200-day moving average resistances poised around ₹3,500. At the same time, it has also strengthened the uptrend that had begun in the last week of August. Immediate supports are at ₹3,425 — the 55-week moving average and at ₹3,350.

There is no danger of a sharp fall as long as the contract trades above these levels.

A rise to ₹3,700 looks likely in the short term.

The bullish outlook will come under pressure only if the contract declines below ₹3,350. Such a break can drag the contract lower to ₹3,200 initially. It will also keep it pressured on the downside for a fall to ₹3,100 and ₹3,000 thereafter.

Published on October 04, 2015
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