#39;Pessimism over domestic soymeal demand may cap oil seed gains#39;

By in Commodity News on May 27, 2020 7:08 pm

Ravindra Rao

After scaling to Rs 3,800 levels, soybean June futures at NCDEX slipped 1 percent from the day’s high to settle at Rs 3,766 per quintal, up by 0.4 percent, from the previous session. A sharp rally in edible oil and firm cues from mustard kept soybean trade positive in the first session of the week.

But, pessimism over domestic soymeal demand following reports of rising swine flu cases in northern India again dragged down the oil seed from higher levels.

India raising its palm oil imports from Malaysia also played a role in curtailing gains in soybean. Though factors like supply crunch of soy oil after labourers left for their home towns, lower arrivals of soybean and expected higher MSP of the oil seed in the 2020-21 kharif season are likely to lift prices in the early trade, we expect soybean to retreat from higher levels amid rising demand concerns.

The Commission for Agricultural Costs and Prices has recommended that the minimum support price (MSP) of soybean be increased to Rs 3,880 per quintal for the 2020-21 season against last year’s Rs 3,710.

Soybean arrivals for the week ended on May 23 increased by 8 percent from the previous week but are still behind previous year’s levels.

In international market, after falling nearly 1.5 percent in the first session, CBOT soybean July contract recovered all the losses of May 25 to settle at 847 cents per bushels in, up by nearly 1.7 percent.

Increasing imports by China has spurred some optimism in the market in spite of concerns over growing US-China rift and COVID-19 infections.

Supply concerns from Argentina, the largest producer and exporter of soy oil, elevated CBOT soy oil July contract by 2.4 percent on May 26 to settle at 27.3 cents levels.

Pressure was seen in soy oil after reports that India may resume purchase of palm oil from Malaysia. However, China allowing US soy oil after two years is likely to keep prices steady with positive bias.

Against 2.4 percent rise in CBOT, soy oil June contract at NCDEX rose by mere 0.4 percent on May 26 to settle at Rs 775.6 per 10 kilogram level.

However, the maximum impact of the sharp rise in CBOT soy oil was seen in far month (August) contract, which rose by around 2 percent, with sharp long accumulation.

Lower supply at domestic ports and concerns over supply from Argentina amid restricted movement on ports is likely to support prices after some more correction.

As per SEA’s provisional data, Indian oil meal exports have more than halved at 1 lakh tonne in April against 2.5 lakh tonne shipped in the year-ago period, also reducing the domestic supply of edible oils.

Moreover, expectation of some respite on opening of HORECA business from next week and lower supply might keep soy oil slightly positive for the day.

The author is VP – Head Commodity Research at Kotak Securities.

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