Soybean -

Source-Bloomberg KCTL BAW 

• In AMJ 2017, NCDEX soybean futures witnessed both sided movement. The prices were on rising trend in the month of April on emergence of fresh buying, however, the gains were not sustained in later part of the period
• Since mid-April, NCDEX soybean futures were on falling trend as prices slumped to 5-years low of Rs. 2643 per quintal (on closing basis) on 5th June 2017 losing by  13.55% from the high of Rs. 3057 (on closing basis) made in the month of April 
• Forecast of normal monsoon for 2017 season as well as higher inventories in the domestic market weighed on the market
• Further, fall in soy meal export and subdued demand from millers had spill-over effect on the market
• The futures prices took a smart recovery in the month of June following reports of slower pace of sowing and on reports on decline in acreage under soybean cultivation in the ongoing kharif season
• The recovery in the price from the 5-years low was 14.26%
• On the global front, CBOT soybean futures were also on downtrend trend for most part of the quarter on expectation of rise in US soybean acreage
• However, prices staged a strong rally since second fortnight of June till first fortnight of July on reports of dry weather conditions, which hampered the sowing activities and crop growth 

Balance Sheet - Global

Source-USDA, KCTL BAW

• Global soybean production is likely to decline by 1.9% Y/Y in the year 2017-18 as the production in US and Brazil is expected to declined by 1.1% and 6.1%, respectively due to unfavorable weather conditions
• According to USDA’s WASDE report, US is likely to harvest 115.90 million MTs while Brazilian farmers are likely to harvest 107 million MTs in 2017-18
• Surprising fact is that global acreage under soybean cultivation is estimated at 126.93 million hectares, up by 5.3% y/y
• Fall in productivity due to expectation of unfavorable weather in major producing nations may result in fall of global production
• Global bean consumption is estimated to increase by 4.17% Y/Y to 345.27 million MTs and ending stocks are estimated to decline marginally by 1.31%, which indicates stock-use ratio is declining to 27.08 in 2017-18 from 28.59 in 2016-17
• China is likely to continue dominating the global domestic consumption table which is rising around 4.2% to 345.27 million MTs

Source-USDA, KCTL BAW

• From the 2016-17 season, India had harvested a bumper soybean crop, which is pegged at 10.58 million MTs (+54% Y/Y)
• After two consecutive years of deficit monsoon, the country had witnessed a normal monsoon in the year 2016, which boosted the crop condition in terms of improvement in yield level
• The acreage under soybean cultivation in 2016-17 was marginally lower compared to a year earlier, however, better yield levels had resulted bumper crop harvest
• Total acreage under soybean in 2016-17 was 114.7 lakh hectares marginally lower compared to last year’s acreage of 116.16 lakh hectares
• Domestic consumption of soybeans is estimated at 7.90 million MTs, up by 28% Y/Y as bumper production led to fall in the prices thereby attracted good consumption demand
• The 2016-17 season is going to witness record ending stock due to lackluster soy meal exports along with good output

• During first 8-months of oil year 2016-17, soy meal exports from India increased by 393% Y/Y at 1,023,057 MTs following a bumper harvest of the soybeans
• In the entire oil year 2015-16, India had shipped 274,118 MTs of soy meal due to fall in the production owing to poor monsoon performance
• Bumper harvest of the crop had resulted into drop in soy meal FOB prices thereby making Indian meal most competitive in international market
• The difference between Indian soy  meal and other declined to $70-100/ton from $150/ton compared to previous oil year
• In the current oil year, total meal exports are likely to be in the range of 11-12 lakh MTs

Source-Reuters, KCTL BAW

• During AMJ 2017, the crush margins hovered around break even level with more inclination towards positive side
• Due to bumper harvest of the crop, the soybean prices fell below the MSP level, which had resulted into positive crush margin
• However, in late June month, the crush margin surged following shut-down of plants on account of GST implementation, which led to lower availability of meal in the market

Source-Reuters, KCTL BAW

• The FOB price of Indian soy meal was marginally up in comparison with other origins during the period from November 2016 to Mar 2017 except USA
• USA had enjoyed competitive advantage in terms of its meal price as it maintained lower price since November 2017
• During the period from Nov’16 to Jul’17, average FOB price of US, Brazil and Argentina was $301, $316 and $330 per MT respectively while Indian average FOB price during the same period was $373 per MT
• The difference of FOB between major supplies started widening from April onwards and presently it is standing at $93 per MT with US, $75 per MT with Argentina and $90 per MT with Brazil

For the medium term, NCDEX soybean futures are likely to trade in bearish trend tracking the following fundamental factors:-

• The country had witnessed supply of around 51 lakh MTs of soybeans till mid of July, which is about half of total supply of 113.40 lakh MTs and only three months are left for commencement of fresh arrivals.
• Since the country had witnessed supply of 51 lakh MTs, the next season is likely to start with huge carry over stocks.
• The beginning of the oil year 2016-17 was promising for the meal exports as country was able to export huge quantities of soy meals. However, in recent months, meal exports are showing declining trend owing to price disparity with other major producing countries, which could be the hindering factor for the market.
• The Kharif sowing season has begun in the country, soybean planting activity in India started late due to poor distribution of rainfall in central India albeit early commencement of monsoon in the country. However, resumption of monsoon rainfall by 2nd of July in major growing regions has improved the crop conditions and supported resowing activity.
• As per the Ministry of agriculture, till 21st July’17 around 84.57 Lakh ha are under soybean cultivation in the country which is down by 17.76% on Y/Y.

Risk- Uneven or poor distribution of rainfall in the crucial growth period of Aug’17 may bring down the yields estimate eventually affecting the overall output thereby supporting the prices.

• NCDEX Soybean August future prices have been recovering since last few sessions after taking strong support at 61.8% Fibonacci retracement of its previous up move from bottom of 1164 till high of 5044, which is placed around 2610 level.

• We expect price will resist near 3180 level, where we can initiate our first sell call and remaining position initiate at 3370 level which is 100 SDMA on weekly chart.

• Stochastic indicator trade near to neutral zone in weekly chart at 61.27 levels which may provide some support to the price but we expect further weakness in underlying commodity on board.

Note: Recommendation is given in August contract. While initiating trade in other contracts, levels to be adjusted as per premium/discount to the August contract

Refined Soy Oil - 

• Refined soy oil futures on NCDEX witnessed a volatile movement during the period from April 2017 till mid July 2017
• The ref. soyoil future prices remained under pressure for most part of April’17 on rising Argentina’s production estimate amid strengthening of INR against USD. It also touched one-year low on 27th April’17
• Overall at NCDEX, refined soy oil future prices moved up by 1.5% till 7th Jul’17 from Rs 638.80/10 Kgs reported on 3rd April’17
• In CBOT soy oil futures rose by 7.91% from 31.35 cents/lbs. to 33.83cents/lbs. by 7th July’17. Crop concerns in US supported the upward move in prices.
• During May'17 the NCDEX ref. soy oil futures moved up in sync with CBOT soy oil. The latter moved up on concerns regarding curbs on bio-fuel imports from Argentina and Indonesia in US
• However, no announcement regarding the curbs eventually led to shedding of the losses by end of the month

• Global soy oil production for the year 2017-18 is estimated at 56.34 million MTs, up by 3.85% Y/Y owing to bumper soybean harvesting
• Major rise in oil production is expected in China and Brazil whose output is likely to increase by 1.3% and 6.9% respectively
• Global consumption is estimated to increase by 4.4% Y/Y in 2017-18 which China and US leading the table of major consumers
• Similarly, global import of soy oil is likely to increase by 3.1% Y/Y as India’s import are expected to rise during this period. Moreover it is the largest importer of soy oil in the world.
• Globally exports of soy oil is likely to rise to 11.9 million MTs up by 3% Y/Y. Argentina is still estimated to be the largest exporter of soy oil, its exports are likely to rise by 3.6% Y/Y to 5.8 million MTs.
• However, higher domestic consumption amid modest rise in output is likely to result in lower ending stock which is estimated down by 1.1% Y/Y

Source-USDA, KCTL BAW

• For the year 2016-17, India’s soy oil production is pegged at 1.21 million MTs, up by 34.80% Y/Y due to increased crushing of soybean as the country had harvested a record crop
• With an increase in the production, the imports are likely to decline by 24.1% Y/Y to 3.22 million MTs
• The domestic consumption is expected to be around 4.7 million MTs in 2016-17 witnessing a moderate decline of 4%
• Lower blending demand along with lower rival mustard oil prices may keep the demand for soyoil subdued
• The ending stocks for 2016-17 is likely to be around 0.29 million MTs, down by 48.8%

• Spread between RSO and CPO futures in Indian bourses has widened for most part of the AMJ quarter in 2017
• The fall in CPO prices was higher on expectation of production recovery in source countries while RSO traded steady to moderately positive
• Meanwhile, crop concerns in US and India due to slower monsoon progress and lower acreage estimate supported the positivity in domestic refined soy oil futures
• The correlation between CPO and RSO at Indian future platforms during the AMJ quarter is around -0.18

• In the 2015-16 oil year, soy oil imports were around 4.24 million MTs
• During 2017-18, soy oil imports till June’17 were 1.98 million MTs, down by 29.5% Y/Y
• Bumper harvest of the crop has resulted into lowering of imports by the country
• Better crush margin, compared to previous oil year have boosted supplies of domestic soyoil in the country
• In May’17, soy oil imports rose by 91.1% to 340,365 MTs Y/Y

• The import of soy oil in India has been lower during 2016-17 compared to previous oil year of 2015-16 ( Nov-Oct)
• Ample supplies of soybean in domestic market along with higher crushing activity curbed import dependency
• The rise in CIF rates of imported soy oil due to crop concerns in Argentina also affected India’s imports
• Moreover, overseas soyoil prices increased due to soybean crop concerns in US and lower global inventories estimate for 2016-17.

NCDEX refined soy oil futures are forecast to trade in bearish trend in the medium term based on following factors:-

• Higher soybean production in India during 2016-17 and rise in domestic crushing activity along with record soybean crop production in South America may keep prices of soyoil under pressure in the medium term
• India continues to be the world largest soyoil importer, along with rise in the domestic production and declining domestic consumption may weigh on the prices during the quarter
• Moreover, higher soybean ending stock along with improved current crop condition in major producing region of India may have negative effect on refined soyoil futures
• Meanwhile, expectation of rise in production of rival palm oil in the source nations may drag down the prices of refined soyoil as both are substitute to each other

Risk- Increase in import duty on edible oil (crude or refined) including soyoil may result in higher retailers or stockiest buying in the immediate term. It may push refined soyoil futures at NCDEX higher against our view.

• NCDEX Soyoil prices have been recovering since last few sessions after taking strong support at 61.8% Fibonacci retracement of its previous up move from bottom of 547.10 till high of 744.05, which is placed around 622 levels.

• We expect price will resist near to 50.0% Fibonacci retracement of its fall from high of 744.05 till its recent bottom of 609.45, which is placed at 677.45 levels. And we should create short position on every rise from that level.

• Stochastic indicator at 64 levels and which is suggest price travel around over bought zone

Note: Recommendation is given in August contract. While initiating trade in other contracts, levels to be adjusted as per premium/discount to the August contract

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