Agri outlook: Limited downside for soybean, mustard

The year 2013-14 has been a challenging one for soybean crushers and exporters owing to price disparity and rising seed prices in the domestic markets.

Heavy rains during the growth of the seed last year not only affected production but also quality of seeds which kept soybean prices in the domestic market higher. Despite a higher acreage which raised optimism about a record production, the same was drawn down to about 9.2 million tonnes in 2013-14 versus 10.8 million tonnes in 2012-13. Crushers have paid fancy premiums - as high as Rs 300 per quintal- for quality seeds. The higher prices at a time of good harvests from South America affected the Indian exports drastically over the last quarter. Exports have plummeted in June to a mere 2,637 tonnes versus 213,564 tonnes in June, 2013 and 8,226 tonnes in May this year.

India lost its share in the Vietnam and Indonesian markets owing to the price disparity. Among those nations that import, Iraq remained the biggest buyer of soya meal from India. However, this year too, the start of the sowing season has remained unpredictable owing to the erratic monsoon. According to the latest update by the Solvent Oilseed Processors Association (SOPA), soybean sowing completed as on July 10 stood at a mere 786,000 hectares compared to 8.35 million hectares during the same time last year, down 75.64 per cent. With the recent rains in the growing belts, the sowing numbers are expected to improve. However, with the huge lag in sowing, monsoon activities and what the farmers decide to sow will play a pivotal role in governing the price trend for the coming year.

Considering the tight supplies in the domestic market and a possible reduced production, soybean prices for the November contract on the NCDEX near Rs 3,350-3,300 a quintal will become a value buy.

Mustard seed prices haven't seen wild swings but have traded in a tight range over the year. The dynamics of the prices is largely dependent on the relative oil prices. Over the years, Indian imports of vegetable oil have risen significantly compared to the previous year keeping a lid on the domestic oil prices.

The total imports of vegetable oil during the period November 2013-June 2014 stands at 7,082,220 tonnes, up 15 per cent year-on-year.

What is notable is the increase in share of soft oils among the total imports. The share of soft oils, i.e. soybean, Sunflower and rapeseed increased to 29 per cent in 2013-14 from 17 per cent during the same tenure in 2012-13. This change is attributed to the falling prices of palm oil, which encouraged importers to prefer soft oils over palm. Increased availability of vegetable oils has kept mustard prices subdued.

Rainfall in north-western India will also play a pivotal role for mustard seed. Rajasthan, the largest mustard-producing state, is dependent on irrigation. We believe there is a limited downside in mustard prices as we enter the festive season and output from the kharif oilseeds remains a concern.

The author is head of research, Nirmal Bang Commodities