Business Standard

Edible oils & oilseeds outlook: Bearish trend unlikely

The rally in soybean is the result of the low supply scenario that the seed is battling with

Rajini Panicker
Related News

There is a storm brewing in the and sector. Key oilseed prices in India, such as prices, have gained 14 per cent since mid-January, while its by-product, refined soyoil have gained five per cent. The rally in soybean is the result of the low supply scenario that the seed is battling with. To elucidate, on the supply numbers, we are revising our soybean production number lower for the second consecutive month to nine million tonnes (MT) from 9.5 MT according to our January estimate and from the initial estimate of 10.2 MT in October 2013. Even after accounting for the lower production, arrivals of soybean from October, 2013 to February are estimated at 5.14 MT, down 22 per cent year-on-year, implying soybean production numbers could be revised lower going forward.

Price signals from international markets also play a key role in soybean price direction, as its by-products - soyoil and soymeal, obtained by crushing the seed - has strong trade linkages. India imports soyoil and exports soymeal. Due to unfavourable weather in South America - the world's largest soybean producing region - the production numbers for the region are also revised lower. Since January, several agencies have reduced the production estimates for the five key South American producing regions by over 7 MT to 150 MT. This has resulted in global benchmark price for soycomplex (soybeans, soyoil and soymeal) tracked by the Chicago Mercantile Exchange (CME) soycomplex futures to post substantial gains. The CME March 2014 soybean futures price rose to a 52-week high of $14.50 a bushel (an imperial and US customary unit of dry volume, equivalent to eight gallons) on February 27, with a similar price rally noticed for CME March soymeal to $484 a tonne. Firm trend in international soymeal prices, implies better realisation for India soymeal exports and supports the rally in soybeans.

On the edible oil front, apart from the rally in soybean, palm oil prices have spearheaded a rally in the sector, which has risen to 17-month highs in the week ended March 1. India imports 60 per cent of its edible oil requirements and palm oil accounts for 72 per cent of edible oil imports. So, if palm oil prices rise internationally, most edible oil prices in India follow suit. Additionally, India's edible oil stocks as of April 1 is estimated 39 per cent lower on the year, on account of the lower opening stocks, anaemic domestic edible oil production growth of two per cent, year-on-year and a decline in estimated imports by four per cent year-on-year for the November-March period.

There are high hopes riding on India's key winter oilseed production, mustard seed, which begins to witness new crop arrivals from mid-March, to correct some of the price appreciation in the sector. According to a Solvent Extractors' Association of India (SEA) survey, India is poised for a higher mustard seed crop this year, as acreage has risen and there have been hardly any reports of pest infestation or diseases. estimates mustard seed production in 2013-14 at 7.59 MT as against 6.85 MT a year ago, which includes 0.15 MT of toria crop.

However, the recent weather changes need close monitoring. Initial estimates are that the hailstorms and rains last week in Rajasthan and Madhya Pradesh could result in damage of five to 10 per cent in mustard seed crops across India. However, more clarity on this will be inferred in the coming weeks. Due to the recent weather changes, the possibility of a downward revision to the output numbers after SEA reviews the estimates before the rabi convention of the Central Organisation for Oil Industry and Trade on March 8-9 cannot be ruled out.

To conclude, with the advent of the winter, oilseed crop arrivals after Holi, which falls on March 17, there could be some correction in prices but we do not expect any bearish trend in the near-to-medium term for edible oil and oilseed prices given the domestic supply and demand scenarios and firm international market trends.

The author is head, commodity research, Phillip Commodities India

Read more on:   

Read More

Seeking value in this market

The trick lies in finding cheap stocks that will give great returns

Quick Links

Market News

Cotton price at multiyear low as demand dries

The price has fallen by almost 10 per cent in a month, and 23 per cent in four months, since the new crop started hitting the market

FMC set to procure more wheat this season

The paddy procurement that has been pegged at 30 million tonne which will meet targets

Govt may take a call on exporting wheat from central pool next month

Officials said the ministry is open to exporting 0.5-1.0 mt of wheat from state-run warehouses

Oil slips to $49 on huge US stock build, firm dollar

Oil slipped to $49 a barrel on Wednesday after an industry report said US crude stocks rose the most in two decades last week, and as a firmer ...

Solvent extractors push to curb sale of loose edible oil

Punjab and Haryana High Court issues a notice to central and Punjab govts, on a PIL alleging violation of food safety norms by edible oil firms


Back to Top