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Shortage In US, Import Duty In India Fuelling Soy Oil, CPO Futures

Author: Subhranil Dey/Friday, February 26, 2021/Categories: Exclusive

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Shortage In US, Import Duty In India Fuelling Soy Oil, CPO Futures

Soy oil and crude palm oil (CPO) futures in the international market are continuously maintaining the uptrend. Factors such as higher demand of soybean oil for meeting the bio-fuel mandates along with shortage of US soybean will continue to fuel the demand. On the contrary, the upside moves of palm oil may get restricted owing to estimates of lower exports after India imposed higher tax on imports and rising inventories.
The Malaysian crude palm oil (CPO) stocks rose 9.76 per cent to 640,781 tonnes in January 2021 from 583,811 tonnes in December 2020, according to the Malaysian Palm Oil Board (MPOB). Overall, it said total palm oil stocks increased by 4.68 per cent m-o-m to 1.32 million tonnes from 1.26 million tonnes previously. Malaysia palm oil exports in January 2021 dropped 42.33 per cent to 947,395 tonnes from 1.64 million tonnes in December 2020, and oleochemical exports slipped by 2.13 per cent m-o-m to 241,897 tonnes compared to 247,171 tonnes previously.
On the contrary, US soybean processing plants likely turned in their third-largest monthly crush on record on January and the largest-ever crush for the first month of the year, according to analysts polled ahead of a National Oilseed Processors' Association (NOPA) report due on Tuesday. NOPA estimated to have crushed 183.087 million bushels of soybeans last month.
Soy oil supplies among NOPA members at the end of January were seen rising to 1.763 billion.
Soaring soybean prices during and after the 2020 harvest sparked active farmer sales of beans to processing plants, providing them ample crushing supplies. Daily crushing rates have been at historic highs over the past four months, averaging around 6 million bushels a day.

Fundamental Factors
In the Union Budget 2021-22, India cut the basic import tax on crude palm oil to 15 per cent from 27.5 per cent, but imposed a 17.5 per cent Cess, a separate tax, on the imports. After the changes, crude palm oil imports would effectively attract 35.75 per cent tax against 30.25 per cent previously. India also imposed 20 per cent Cess on crude soybean and soyoil imports, but cut basic customs duty on both the commodities to 15 per cent from 35 per cent.
According to the Solvent Extractors’ Association of India (SEAI), the imports of vegetable oils during January 2021 were at 1,096,669 tons compared to 1,195,812 tons in January 2020, consisting 1,074,635 tons of edible oils and 22,034 tons of non-edible oils i.e. down by eight per cent.
Import of Soybean oil in January 2021 was lowest as truckers strikes in Argentina seriously affected loading during Nov.,2020 resulted lesser vessels of soybean oil arrival in India during January 2021.
During November 2020-January 2021, Palm oil import rose to 2,169,601 tons when compared to 2,008,657 tons during November 2019-January 2020 due to duty advantage. Soft Oil import has marginally decreased to 1,316,524 tons compared to 1,356,270 tons during Nov.’19-Jan.’20 due to lower import of sunflower oil.
The stock of edible oils as on February 1, 2021, at various ports estimated at 657,000 tons and in pipeline 1,130,000 tons, total stock at 1,787,000 tons. The stock has marginally decreased by 28,000 tons to 17.87 lakh tons as on 1st Feb.,2021 from 18.15 lakh tons as on January 1, 2021.

Mustard Futures
New Mustard seed (42 percent condition) is being traded at Rs6,400-6,405 per quintal in Jaipur. Old mustard seed was priced at Rs6,475-6,480 per quintal in Jaipur. Mustard oil price is traded at Rs1,284-1,285 in Jaipur and 1,274-1,275 per 10 kilogram in adjoining areas. Mustard oil cake is priced steady at Rs. 2720-2725 per quintal.
Mustard oil seed arrivals are as high as 2 lakh bags (100 kg each) in all over the country. Total mustard seed arrival was steady at 200,000 bags in all over the country. New mustard seed arrival was 185,000 bags. Old mustard seed arrival was steady at 15,000 bags in the mandis.
Higher oil seed arrival failed to stem price rise due to strong buying from stockists and processors and millers. Mustard seed prices are gaining further in producing states Rajasthan and others. The oil seed is finding support from agressive buying from millers and stockists.
Min of Agriculture sanctioned procurement of 2,28,500 MT Mustard under Price Support Scheme in MP state for Rabi 2020-21.NAFED is making arrangements to undertake procurement operations.
Mustard futures (April) continuously gaining grounds from Rs4,900 per quintal to reach three weeks high of Rs5,330. This rally is due to very less availability, merely one lakh tons of carry forward stocks against the strong demand from millers. Hence, despite of the ongoing harvesting season, the uptrend is intact. Going ahead, we will probably continue to see this bullishness as it can rise till Rs5,600, taking support near Rs5,180-5,100 levels.

Export Demand
Coming back to soybean meal exports, strong export demand and increased crop availability in the domestic market have boosted exports for the current season 2020-21. The oil marketing year runs from October 2020 through September 2021.
So far during October 2020 to January 2021, the data show that India exported 9.5 lakh tonnes of soybean meal through sea and land. This is up 223 per cent from 2.94 lakh tonnes in the same period last year.
Indian soybean meal prices are competitive against the US, Brazil and Argentina. This is increasing India's soymeal exports. India's soybean meal exports could double to 18 lakh tonnes in the current oil marketing year (October 2020-September 2021). In the last oil marketing year, 8.62 lakh tonnes of soybean meal were exported from the country. SOPA has retained its soybean crop estimate at 104.55 lakh tonnes for the current year, up 12 per cent from 93.06 lakh tonnes last year.

- The writer is a senior research analyst (agri commodities) at SMC Global Securities Ltd

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