October 19, 2010

Indian soy prices swayed by seasonal factors

Pressure on Indian soy prices will continue to build up due to seasonal factors and good stock positions, and a considerable rise in domestic and global demand for the oilseed is going to keep prices buoyant in the near term.

The Indian soy season has begun with harvests coming in from the main growing regions a few weeks ago. As harvests continue to build pressure on prices of the commodity, futures prices of soy are also expected to remain under check till the beginning of April.

An analysis of soy futures prices between 2004 and 2009 shows that prices have jumped the most in the April to July period, when a proper assessment of the domestic closing stock is possible as most export consignments are either on its way or accounted for exports by millers.

In an unusual trend last year, prices of soy futures witnessed a 62.5% jump from INR1,500 (US$34.09) to INR2,300 (US$52.27) for the March month contract of the Indian National Commodity and Derivative Exchange (NCDEX), early in the season between October to January. The uptrend continued till May, when high prices forced millers to stop purchase and futures price support was arrested at INR2,400 (US$54.55) levels.

"Bad rains had delayed crop harvest last year. Farmers in the main growing states of Madhya Pradesh and Gujarat had lost crops and futures prices too had reacted similarly. Moreover, a global decline in soy output last year and pick up in consumer demand pushed world prices to record highs around the same time," said senior agriculture analyst Prasun Mathur.

India's soy production this year (2010-11 season) is estimated to be at 8.8 million tonnes. Production had dropped to 8.5 million tonnes in 2009-10, down from 8.9 million tonnes as India experienced the worst monsoon rains in 37 years last year, which resulted in drought in many parts of the country.

"This year, world demand for soy is expected to jump 6%, while India's domestic demand is expected to rise 11%. Traditionally, demand of edible oils and oilseeds like soy reflects a direct correlation to economic growth," said Mathur.

Anticipating higher export demand of oilseeds this year, soy domestic stock is expected to decline this year to 750,000 tonnes, down 35% from last year. Crushing demand from millers is expected rise due to more export bookings and domestic demand is projected to rise to 9.15 million tonnes, up from 8.21 million tonnes the previous year, latest USDA estimates show.