August 3, 2012

 

 

As poor monsoon rains threaten crop yields, India-Asia's  top soymeal exporter-could turn into an importer, lifting domestic prices to a record high and deepening global supply concerns triggered by the worst US drought in 56 years.

 

Soymeal prices in India have more than doubled in the last three months, raising concerns over food inflation and prompting the authorities to abolish customs tariffs on oilmeal imports.

 

"It is bullish for prices as a supplier is turning into an importer," said one trading manager with an international trading company in Singapore, who declined to be identified because he was not authorised to speak to the media. "We don't see large-scale imports but it is more of a psychological move."

 

India's imports could buoy benchmark Chicago soymeal futures, which have jumped almost 40% in the last two months, hitting an all-time on Tuesday (July 31), as the US drought curbs yields.

 

Indian soymeal prices have climbed 110% since early May to a record US$850 a tonne as the June-September monsoon rains, the main source of irrigation for half of its farmlands, have been a fifth below normal.

 

Import duty on oilcakes or oilmeal will be waived to ease tight domestic supplies for the feed industry and edible oil producers, Farm Minister Sharad Pawar announced this week.

 

India exports about 4-5 million tonnes of soymeal annually and around 2-4 million tonnes of corn, mainly to Asia. This year it has sold about half-a-million tonnes of soymeal to sanctions-hit Iran at record prices. Weather conditions make it difficult to track future requirements precisely, and India has previously suffered from production swings of this kind.

 

As the market awaits a formal order from the government, traders said shipments to India were most likely to be made from China, itself the world's biggest soy importer. Traders are quoting Chinese soymeal at around US$690 a tonne, including the cost of shipping to India.

 

"China is most competitive at the moment for supplies to India," said another Singapore trader. "India could buy around 300,000 tonnes from China in the next few months."

 

Imports could ease India's soymeal prices, even though this volume is paltry beside the nation's annual consumption of 3.4 million tonnes, which is used to feed cattle, chickens, pigs and fish. Meal is made by extracting oil from the beans.

 

China, which imports 60% of the world's traded soy, has an overcapacity in oilseed processing, leading to comparatively lower prices.

 

"The duty waiver will be helpful to import oilmeal until new oilseed crops come in October," said a Mumbai-based trader. Import duty on oilmeals such as soy, groundnut and sunflower stands around 20%, including local levies.

 

Traders said India has never imported soymeal, although it has bought other types of oilmeal, such as mustard or rapeseed, palm kernel and groundnut or sunflower, as and when needed.

 

Some traders said about 700,000-800,000 tonnes of soy stocks from the previous season were still available in local markets to feed industry demand until the new harvest starts from October.