The Two Divergent Trends In Indian Oilseeds That Could Continue More

MUMBAI (Commoditiescontrol) - Mustard spot prices (NCDEX) in June surged to test fresh high for the season at above Rs.4900 per quintal on the other hand the Soybean Indore prices are racing to touch the seasonal lows. Currently NCDEX Soybean at Indore is quoting at around 3750 per quintal which has corrected by close to 13% from its seasonal high levels and is just 7 per cent away from the seasonal low levels seen at around 3500 per quintal on 1st October 2015. While both the crops have shared the common fate of below normal monsoon the trend has been divergent, very different demand as well as supply side story has sealed the fate of both these oilseed in two opposite direction.

Soy meal exports have fallen to lowest in more than a decade. Soybean prices in most years have remained supported in response to the robust exports that formed more than 80 per cent of total production for many years in a row. Global soy meal prices traded in an elevated range after making an all time high in 2012-2014. It was only after May 2014 that soy meal global prices collapsed to touch the lowest levels since August 2008. As global prices collapsed Indian prices did not go down and lost its export competitiveness. After exporting record quantity of around 41 lakh tonnes for three season in a row starting from 2010-11, the exports are expected to come down to less than 3 lakh tonne in 2015-16! While lot of meal is getting diverted into poultry and cattle feed industry, aqua feed industry is the other area in which the extra meal is getting absorbed. But despite this trend in domestic demand, lack of exports of meal, has resulted in lowest crushing of soybean in last ten years or more.

Soybean has long shelf life. Last time at the popular edible oil conference Globe Oil the carry forward estimates from previous season were in the range of 800 to 1300 thousand tonnes. In response to lowest crop in a decade, some of the extra bean has been absorbed in Indian market. As a result the carry forward may decline marginally this season. The actual size of carry forward once again will be a matter of great debate. But what remain undisputed are the falling prices and the recovery in yields next year. In 2016-17 the crop size is expected to rebound above the five year average of around 92 lakh tonnes. And this in turn will only add to the existing glut in the soybean market.

On the other hand Mustard seed is expected to have ended with record low carry forward stocks, and with current season crop once again being a victim of El Nino, the next year is also expected to remain extremely tight if not tighter. Most of the cattle as well as poultry feed grain prices have rallied and some of them continue to make new all time high levels. Cotton seed oilcake and Mustard Cake/Meal are two main ingredients for the cattle feed industry. And supply crunch has impacted both the raw material. Green grass becomes an important ingredient for cattle feed which was also a victim of draught. Even Mustard has lost its competitiveness in recent years and the exports that peaked in 2011-12 at close to 12 lakh tonnes have dipped to less than 4 lakh tonnes in the year that just ended, and the exports are expected to shrink further due to high prices in the current season. It was the tightness in the total cattle feed sector along with a much larger share of domestic consumption in total demand that has seen this divergence in trend from Soybean. Even at the peak of exports in 2011-12, exports formed just 27 percent of the total demand.

Price gap between the two oil seeds vary according to season. Currently Mustard seed Jaipur (NCDEX) is at a premium of around 1100 Rs per quintal. The maximum the spread has widened to was in Oct 2015 at 1300 per quintal, in terms of percentage Mustard seed traded at a premium of close to 35% over soybean. All time high spread was noted in November 2008 at 1500 per quintal the ratio between the two oilseeds was 1:2, Mustard seed prices quoted double to that of Soybean prices back then, and currently Mustard seed is quoting at a premium of 25% over soybean. Fundamental of both the oilseed are suggestive that this trend will continue and exacerbate at the time Soybean is ready for harvest, at the same time as last year, but the gap would be much more than what was seen last year.

The base case scenario includes the possibility that due to very sharp rally in global soy meal prices, the soy meal exports may revive back to close to 10 lakh tons. But the sharp recovery in yields will continue to put the bean prices under pressure. Mustard seed on the other hand may at best see seasonal corrections at the time of harvest of Kharif crop.

(By Commoditiescontrol Bureau; +91-22-40015533)