Edible oils outlook: Is the worst over for the sector?

During the oilseed year 2014-15, total soymeal exports between October 2014 and January 2015 were a dismal 438,135 tonnes, compared with 1.5 million tonnes during the corresponding period in 2013-14. The 70 per cent fall in soymeal exports is sharp and is raising viability concerns for crushers. Soymeal is a by-product in the process of crushing soybean to produce soy oil. Lower crushing will lead to higher import of soy oil. Import of soy oil have, in fact, grown steadily over the years and touched 1.95 million tonnes in 2014-15.

Soymeal exports are usually robust during October-February. They start declining after this period, when importers (our foreign customers) shift to other origins like South America, which begins harvesting a new soybean crop. With production rising and demand falling year-on-year, soybean stocks at the end of 2014-15 are expected to be higher if the demand doesn't see any pick-up.

With the Indian soymeal season drawing to an end on a drastically poor note and world supplies set to rise in the coming days, Indian soymeal is set to face severe headwinds.

If we take a look at the palm oil scenario, the production cycle in Malaysia is likely to turn to a high-yielding phase from March, recovering from the setbacks of weather anomalies, which will add to the supply side. If the weather remains conducive through the year, we could see production estimates revised higher. Production for 2015 is expected to be 20.5 mt, up from 20.2 mt in 2014. Also, one must watch out for crude oil prices and implementation of the bio-diesel mandate. If crude oil prices continue to remain under pressure, it would eventually make production of bio-diesel unviable. This would be mean further addition to the surplus palm oil available for consumption.

After a sharp fall in crude oil prices, we have seen a drop in bio-diesel production. But if crude oil bottoms out, which looks likely, and gradually moves up, it will lead to an uptick in demand from bio-diesel sector.

We will see arrivals of soybean from the world's two largest producing countries in full swing. This would mean higher crushing and, thereby, higher soy oil production.

In India, we would also witness higher arrivals of rabi oilseeds from mid-March, likely to add to domestic vegetable oil supplies.

According to the latest data, India's vegetable oil stockpiles stand above two mt, a level not seen at this point of time over the past few years. Therefore, higher supply of oils will dominate the market in 2015. However, prices of edible oils, which have remained under pressure, seem to have discounted the glut.

The focus will be on sowing in the US and India. Any delay or drop in sowing can support prices. Pick up in Chinese demand and gradual increase in crude oil prices can also trigger an uptick in edible oil prices.

The author is head of commodities research, Nirmal Bang