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Soybean Futures Moving In Upside Bias

Author: Subhranil Dey/Wednesday, October 28, 2020/Categories: Exclusive

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Soybean Futures Moving In Upside Bias

Soybean futures (November) are expected to trade with an upside bias in the range of Rs3,900-4,300 per quintal. Despite the ongoing harvesting season, the prices are showing an upsurge due to two factors. Firstly, reports of crop damage during this Kharif season, lowering estimates of production, secondly tracking robust rally of US soy on CBOT.

According to the Soybean Processors’ Association of India (SOPA), soybean crop in Madhya Pradesh and Rajasthan was badly affected due to yellow mosaic virus, Stem fly, Anthracnose and other pests/disease resulting in low yield and small seed size. Seed damaged due to regular rains during crop harvesting time.

Soybean crop in Maharashtra and other states is normal to good. Soybean production in Khandwa, Khargone, Badwani, Dhar, Ratlam and Mandsaur better then other districts in Madhya Pradesh.

As per the SOPA, the total area under soybean for the year 2020 is 118.383 lakh hectares, which is higher by about 10 per cent over last year. The official area given by the Centre is 121.427 lakh hectares. Estimated total production of Soybean crop for all India for the year 2020 is 104.552 Lakh tons, which is higher by 12.346 per cent as compared to previous year’s production of 93 lakh tons.

There is more room for upside in soy oil futures (November) as it has the potential to test Rs960-980, while CPO futures (October) can rally till Rs850 level. India’s import of edible oil is likely to fall by almost 1.5 million tonnes (mt) during the oil year 2019-20. (The edible oil year ranges from November to October.) The country is estimated to import around 13.5 mt during 2019-20 as against 14.9 mt in the previous year. 

Imports may decline in November and December as higher production of monsoon-sown oilseeds curbs imports, while palm oil-use in restaurants and hotels is still picking up. Arecovery in demand from India may curb the expansion of stockpiles, which have begun to swell in Malaysia, and could underpin prices at a time when a chronic labor shortage hampers production in the second-largest grower.

On the international market, money managers reduced their net long in soybean oil futures and options to 80,994 contracts through October 6 from 94,098 a week earlier, despite a 1% rise in futures and the expectation for light buying.

Malaysia’s palm oil inventory up 1.2 per cent in September from a month earlier, official data Monday showed.

Stockpile in Malaysia, the world’s largest palm oil producer after Indonesia, totaled 1.73 million tons in September compared with 1.70 million tons in August, according to Malaysian Palm Oil Board. Exports rose 1.9 per cent to 1.61 million tons from 1.58 million tons in the previous month. Production, meanwhile, rose 0.3 per cent at 1.87 million tons in September from 1.86 million tons in August.

Soybean yield in 2020-21 is estimated at 883 kg per ha, as against 865 kg per ha last year. Sopa, earlier projected the yield to be 1,052 kg per ha. Total area under soybean in Madhya Pradesh for the year 2020 is 58.540 Lakh hectares, which is higher by about 12.68% over last year. Estimated total production of Soybean in Madhya Pradesh for the year 2020 is 41.772 Lakh tons, which is higher by 4.15% as compared to previous year's production of 40.107 lakh tons.

As per SOPA, total area under soybean in Maharashtra for the year 2020 is 40.397 Lakh hectares, which is higher by about 8.12% over last year's area of 37.363 lakh hectares. Estimated total production of Soybean in Maharashtra for the year 2020 is 45.444 lakh tons, which is higher by 15.29 per cent as compared to previous year’s production of 39.416 lakh tons.

Total area under soybean in Rajasthan for the year 2020 is 11.002 Lakh hectares, which is higher by about 14.28 per cent over last year. Estimated total production of Soybean crop for Rajasthan for the year 2020 is 8.583 lakh tons, which is higher by 30.84% as compared to previous year's production of 6.560 lakh tons.

Fundamentals

Chicago soybean futures are trading near a more than two-year peak as the US government’s estimate for lower supplies supported prices. Soybean stocks were pegged at a five-year low, with rising exports eating into the stockpile, according to the US Agriculture Department’s monthly World Agricultural Supply and Demand Estimates Report.

US oilseed production for 2020/21 is projected at 126.6 million tons, down 1.1 million from last month with lower soybean, peanut, and cottonseed production partly offset with higher canola and sunflowerseed.

US Soybean production is forecast at 4.3 billion bushels (1 bushel=60 pounds in weight), down 45 million on lower harvested area. Harvested area is reduced 0.7 million acres to 82.3 million, with reductions for Kansas, North Dakota, and South Dakota.

The soybean yield is projected at 51.9 bushels per acre, unchanged from the September forecast. Soybean supplies for 2020/21 are forecast at 4.8 billion bushels, down 96 million on lower production and beginning stocks.

Despite reduced supplies, soybean exports are raised 75 million bushels on record early-season sales. With smaller supplies and increased exports, ending stocks are projected at 290 million bushels, down 170 million from last month.

The US season-average soybean price for 2020/21 is forecast at $9.80 per bushel, up 55 cents reflecting smaller supplies and higher exports. The soybean meal price is forecast at $335.00 per short ton, up $20.00. The soybean oil price forecast is raised 0.5 cents to 32.5 cents per pound.

With US soy supplies tightening, traders are increasingly turning their attention toward rival producer Brazil, where dryness has threatened plantings. Weather issues in the United States and related reductions in forecast soybean production have further reduced forecast ending stocks when combined with lower 2019/20 carryout. This increases the possibility of global supplies tightening in 2021, particularly if the current La Niña weather pattern leads to drier conditions in South America. This has likely added some strength to futures prices.

In the week ended October 6, money managers increased their net long position in CBOT soybean futures and options to 238,394 contracts, up 9,351 from the previous week, according to data from the US Commodity Futures Trading Commission.

Open Interest (OI) in soybean futures and options reached 1.27 million contracts as of October 6, less than 30,000 contracts off the June 2016 record. That represents a 32 per cent surge in open interest since late August, which is huge for a seven-week stretch.

The dynamics behind the mid-August to mid-September price surge are complex, but basically reflect a rebound in China purchases of US soybeans and limited availability of exportable supplies in South America.

The strong pace of 2020 exports, driven by strong China demand and a record low exchange rate, has depleted exportable supplies and is forecast to drive Brazil imports to their highest level since 2003.

Consequently, China buyers have turned agressively to securing US soybeans in recent months. Outstanding sales to China in mid-September totaled nearly 17.0 million tons, nearly equal to the record set in 2013.

The writer is a senior research analyst (agri commodities), SMC Global Securities

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