What Is The Right Price For The New Crop Soybean?

MUMBAI (Commoditiescontrol) - If futures are any indication the market is pricing the new crop soybean price to be around 3400 per quintal, which has come down from being 3900 per quintal in early July 2016, and from being 3650 per quintal couple of days back when the contract traded maximum volumes. Assuming that the high volume price discovery is more market driven, is that the correct price for 2016-17 crop?

Since edible oil is largely imported commodity and meal is predominantly an export commodity, prices of soybean can be derived from various factors, in addition to the crops own supply and demand fundamentals.

Indian oilseed production has remained at a deficit of its annual requirement for many years now. And as a thumb rule the carry forwards in oilseed are minimal, as we consume all that we need. But last couple of years have been an exception of soybean. Bean being primarily a meal crop with 82% of it getting transformed into meal, and bean demand is driven by meal exports. Global meal prices collapsed to multi-year low in 2015-16 (Oct-Sept). Since last couple of years Indian meal was losing its export competitiveness and current year exports are lowest in last nine years! As a consequence India is carrying its old soybean crop of last two years. Trade estimates are that the carry forward since last two years are around one million tonnes. This year though, the fortunes are expected to turn after two years of very difficult year for the industry, due to relatively bullish global fundamentals and bearish Indian fundamentals.

Taking cues from NCDEX futures one can derive at the fair price of soybean prices for new crop in November 2016. Refined soy oil prices for November is at around Rs 670 per ten kg. Forward price for Argentina meal for the month of November 2016 is around 365 USD per tons. Indian Soy meal usually achieves an export parity when Indian FOB price is in range of 50-80 $/ton premium to Argentina FOB. This means that Indian meal will gain export parity at around 420-450 $/ton, working out to be Rs 28,500 to 30,500 Rs per ton with November INR. Assuming zero crush parity at these levels, Rs 3200- 3400 per quintal seems like a fair price.

It is important to understand that all the prices discovered as on date are dynamic and may move in next couple of months. Price history suggests that as the northern hemisphere harvest nears, prices of the South American meal also corrects. South American meal prices usually bottom in the month of March-April and then once again dip in the month of October. As on date the Argentina meal prices have already corrected from the seasonal high of 466 $/ton. It remains to be seen if the South-Am forward rate quoted for the November delivery comes under further selling pressure going forward if the crop is good in countries like US, India and China.

Assuming that the current year crop turns out to be very good, as it is now; free of pest and weather damage, the bean supply in the Indian market will become very burdensome due to very large carry forward from previous two seasons. Trade estimate of the crop size is of more than 10 million tonnes as on date. This is the main reason why even if the bean-oil - meal price based trade calculation suggest that the prices could bottom out at around 3200-3400 per quintal, the demand and supply related calculations suggest that the prices could continue to dip lower. Of course a lot can happen between now and final harvest.

Heavy supply in the first quarter OND, and very large carry forward stocks from previous year, will keep the stockists away even if the export parity of meal sets in and the crushing operations begin full-fledged. Only the actual meal exports out of India in huge quantities for 3-4 months in a row will help the bottoming out process of Soybean complex in India.

TECHNICAL OUTLOOK: SPOT SOYBEAN INDORE



A larger degree Wave B is in progress which can end at 3500, 3110 or at 2699.

Trend appears to be down and sideways therefore lower level of 3500 or below is likely to be tested in near term.

Breakout and close above 4250 can show a rally in Soybean prices. For the time being the band can be 3450-3800.
Expect support at lower level of 3500 -3110 -2699 to be tested.

Most likely support recovery may happen from 3500 or 3110. Upside locked to 3800-4200.

Conclusion
Trend down with sideways volatility. Expect correction to continue below 3400. Band of movement can be 3400-3800.

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