Soybean prices likely to rebound by May on China demand

By Naveen Mathur

A commodity that remained positive during most of 2012 and achieved historical high levels, soybean is likely to remain stable in 2013. At the start of last year, there was pessimism regarding soybean supplies as production in the two main countries—Brazil and Argentina—had taken a hit. With their output at 18% and 12% lower, respectively, in 2011-12, the global production as well as ending stocks of soybean plummeted 9.4% and 21.09%, respectively.

The US drought and deficient rains during the third quarter of 2012 led to heightened worries over soybean supplies for the second consecutive year. Nevertheless, commodities follow a seasonal production cycle and higher prices in 2012 encouraged the farmers in Argentina and Brazil to opt for soybean. Accordingly, 2012-13 shall see record high acreage and production of soybean in these two major producing and exporting countries, bringing some relief to the soaring prices.

The largest produced oilseed globally is known for its high protein content and is crushed to obtain soy oil and soy meal. Almost 18% of the oil is used for direct consumption and industrial purpose.

The remaining 82% is soy meal, used mainly as feed for livestock.

Soybean prices are largely impacted by the supply scenario in the chief producing and exporting nations—US, Brazil and Argentina—which account for over 80% of global production.

The demand side fundamentals are influenced by the consumption pattern of China, the largest consumer and importer of soybean, accounting for over 27% of global consumption.

The latter has witnessed a modest growth of around 2.9% CAGR for over a decade and was 256 million tonne in 2011-12. The global production has grown at 2.5% CAGR for over a decade and was 238 million tonne in 2011-12.

India holds a minuscule share of 4.5% in the global soybean production, but it takes cues from the international soybean prices as it is the largest importer of edible oil.

Soybean is the largest produced oilseed, with a 40% share in the Indian oilseed production.

To boost domestic production and reduce dependence on imports, the government has raised the MSP from Rs 1,690 per quintal in 2011-12 to Rs 12,200 in 2012-13.

The domestic soybean production in 2012-13 is estimated to increase to 113 lakh tonne.

India produces about 72 lakh tonne of edible oil, of which soy oil contributes more than 22%.

On the other hand, it consumes 170-175 lakh tonne of edible oil and has to import 50-55% of this. Of the imports, palm oil has 85% share, followed by soy oil (12%). Thus, domestic prices of edible oil have a significant correlation with the global palm oil prices.