Domestic soyabean prices under pressure

Soyabean prices have risen 12.8 per cent in global markets this year, but are likely to come under pressure in the medium term due to production surpluses. Soyabean production for the 2012-13 marketing year has been estimated at 269.6 million tonnes (mt) by the US Department of Agriculture (USDA), up 12.4 per cent from 2011-12 levels.

Coupled with an increase in the acreage under cultivation, easy availability will have a depressing effect on the agri-commodity’s fortunes. At the same time, any short-term lull in prices could spur greater demand for this key ingredient in animal feedstock, as importers will use the opportunity to build up stocks. This would cushion the impact that higher output will have on prices in the near-term.

Key driver

Soyabean prices touched $15.74 a bushel on the Chicago Board of Trade on July 2. The key driver of prices has been export demand, as key consumers were seen augmenting stocks following a sharp fall in soyabean availability in the 2011-12 marketing year.

Production had dipped 9.1 per cent in the 2011-12 marketing year on account of drought conditions in Brazil, the world’s second-largest producer.

In terms of demand, soyabean usage in the 2012-13 marketing year is pegged at 260 mt, indicating a surplus of 9 mt. This is a marginal increase in demand from 256 mt in 2011-12 marketing year and 251.6 mt in 2010-11. World soyabean use is estimated to have increased by 7.8 mt annually since the 2008-09 marketing year.

The production surplus is likely to result in heavy competition in global export markets, dampening the prospects for India’s output. It is estimated that the country’s soyabean meal exports could decline 7 per cent to about 4 mt. Soyabean for one-month contract delivery has risen sharply on the Ahmedabad Commodity Exchange since its introduction on February 11, driven by demand expectations. It has risen 17.5 per cent since then, to Rs 3,725.50 a quintal from Rs 3,170.50 a quintal on June 18. But in the past two weeks, the agri-commodity has lost ground, falling 2.8 per cent to Rs 3,623/quintal on July 2.

This comes in the wake of an expansion of sown area by 2 per cent to 11 million hectares this year, as Indian farmers responded to the rising prices, according to USDA estimates. Planting commences in June and given the healthy monsoon rain, production is projected to rise 4 per cent to a record 12 mt in the 2013-14 crop year, assuming normal yields.

Consumption to help

Nevertheless, growing consumption at home for the livestock industry could partially insulate domestic soyabean prices from the global scenario and push up prices in the medium-term. It is also possible that the lower prices will attract import interest, particularly from China.

Soyabean imports by China have been estimated at 69 mt in the 2013-14 marketing year, compared with 59 mt in 2012-13. It will help supplement shortfalls in production in that country and accommodate growth in crushing activity for oil and meal production purpose.

Soyabean is an important global crop, as processed soyabean is the largest source of protein feed for livestock and the second largest source of vegetable oil in the world.

About 85 per cent of global production is crushed for production of soya oil and soya meal.

Domestic prices of the agricultural commodity are highly influenced by global price movements.

>arvind.jayaram@thehindu.co.in

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