Crop damage & lower production estimates to support NCDEX Soybean futures

Soybean is a Kharif Crop sown/grown in the monsoon season from June to August. The major states that grow Soybean are Maharashtra, Madhya Pradesh and Rajasthan, and the usual new crop harvesting period happens from October to December every year.

Other states that sow Soyabean in small hectares are Gujarat, Haryana and Chhattisgarh.

Sowing of Soybean depends on the monsoon season and the distribution of rainfall. Efficient rainfall with good amounts of water content in the topsoil and subsoil improves the yield for sowing and eventually increases the production during the harvest period. Price also plays a critical role that would determine how much sowing the farmers are ready to do.

Higher spot and futures prices along with higher MSP (Minimum Support Price) rates are generally forecasted to increase sowing of Soyabean, while lower prices can possibly lead to crop switching to other crops such as Cotton, Maize and Castor Seed in the major states respectively.

Refined Soya Oil is also a very well-known by-product of Soybean in the domestic market and traded in NCDEX exchanges. Soymeal is a by-product meal of Soybean which is mainly used in the domestic market as an organic fertilizer or used as cattle feed is also traded in NCDEX Exchange.

The other major soy-producing countries are the United States, Argentina and Brazil. India is also among the top exporters of Soybean and futures prices in NCDEX Soybean also has a direct relation with the prices of Soybean listed in the Chicago Board and International Commodity Exchange. Unlike Soybean, Refined Soya Oil is majorly imported from the above international countries.

NCDEX Soybean futures had majorly traded mixed to bullish during September and October so far, owing to continued rainfall, flood reports, even though there had been higher sowing in Madhya Pradesh and Maharashtra. Moreover, there have also been reports of lower sowing in the United States by 5-10 percent and possible lockdown situation once again amid fear of COVID-19 had disrupted the farm activities.

Moreover, prices remain supported from the lower levels, as reports of steady buying of Soybean from China based on phase one trade deal with the United States had supported prices. By October 19, NCDEX Soybean futures had closed at Rs 4,246 per quintal higher by 8.37 percent compared to Rs 3,918 per quintal by August 31.

Fundamentally for the month ahead, we are expecting NCDEX Soybean futures to trade bullish, as all India sowing acreage has been similar at 120.6 lakh hectares compared to the previous year. However, there have been reports of lower yields of 5-10 percent compared to the last year 2019-20 in the major states of Madhya Pradesh, Maharashtra and Rajasthan.

Continued rainfall in October month in above states has also led to crop damage and reports of lower yields & higher moisture. Moreover, the initial harvest phase witnessed higher demand even though there had been higher arrivals during the late September month onwards, which could also support the spot and futures prices.

Furthermore, prices could also find support from the extreme lower levels as the Central Government is likely to raise import duties on vegetable oils such as Soy Oil, based on recent sources to make India more self-reliant. The domestic traders and industrialists have also pointed out the export demand for Soybean meal from India had been lower in the last 3-4 months but is forecasted to be increased in the coming months.

Lower yield, higher crush, lower beginning & ending stocks, and production reports in US and China-based on recent WASDE monthly report, estimated to support CBOT future prices. Possible decline in Soybean plantings in Brazil for the year 2020-21 could also support CBOT prices in the month ahead.

In conclusion, we expect a bullish trend in NCDEX Soybean November Futures and prices are expected to move towards Rs 4,600 per quintal for the month ahead.

(Sumeet Bagadia, Executive Director at Choice Broking.)