Monthly vfff Report on Oilseeds

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2 Market Movements ahead Domestic Fundamentals: Soybean futures (May) S2 S1 Pivot R1 R In days to come, we may see an upside momentum in soybean futures (May) as it can test , as soon as it breaks the resistance near 3900 levels, taking support near As per the seasonal trend, soybean prices generally improve in month of April as compared to March. This could keep soybean prices in the positive territory. Along with that, the positive crush margin of INR 820/Mt shall further support crushers and buyers to reinitiate soybean buying in coming period. Indian soybean market witnessed sharp upside bounce this month with very poor availability of stock in cash market along with rise in crushers demand with improving meal prices. Moreover, firmness in global palm and soya market also supported the overall trend. Being a Kharif crop, any negative news on monsoon creates a buying spree in the oilseed. Recently, Skyment reported that India s June-September monsoon, which delivers more than 70 percent of the country s annual rainfall, is likely to be below normal this year as the El Nino weather pattern may impact rain. India has a 55 percent chance of a below-normal monsoon, 30 percent probability of normal showers and a 15 percent chance of a drought. June is likely to have a very sluggish start and deficit rains are likely to spill into July, adding that the second half of the season would see better rainfall. Showers are expected to be 77 percent of the longterm average in June, 91 percent in July, 102 percent in August and 99 percent in September. Weak monsoon shall impact kharif crop production and yield this year including soybean crop, which was observed higher last year. Lower crop prediction for Kharif oilseeds shall support the overall price trend in the days ahead. As per market sources, demand for soymeal has improved at lower levels which is one again giving support to physical market prices. The meal prices in Indore market has increased by almost 9 % from INR per MT to INR per MT in a period of one month. Moreover, there is very less stock available for soybean in market and thus crushers are buying actively to meet their regular requirements. Due to poor arrivals and gradually improving meal demand, physical market price for soybean is also being observed on higher side. Page 2

3 International fundamentals: U.S Soybean futures (May) S2 S1 Pivot R1 R U.S Soybeans (May) is expected to consolidate & trade with an upside bias in the range of $8.75-$9.15 per bushel. The sentiments are positive because of Chinese stepping up imports of U.S soybean. U.S. exporters sold 828,000 tonnes of soybeans to China, the U.S. Agriculture Department said on Monday, the second sale announced since the two countries concluded their latest round of negotiations last week to end their trade war. As part of the continued, multi-country tour to promote U.S. soy, leaders from the U.S. Soybean Export Council (USSEC), the American Soybean Association (ASA) and the United Soybean Board (USB) are meeting with Chinese importers in Beijing and Shanghai. US soybean net export sales for the marketing year were million mt for the week ending March 28, with 1.7 million mt reported for China, Department of Agriculture data. Since the marketing year began September 1, total commitments -- cumulative exports plus outstanding sales -- were reported at million mt, which is 15.24% below the same period last year. The total commitments represent 85.52% of the USDA's million mt estimate exports for the entire marketing year. The heavy majority of the weekly sales were for China with 1.7 million mt. China has stepped up its purchases of U.S. soybeans during negotiations to end the trade war between the two countries but the amount purchased remained well below typical levels. The U.S. soybean stockpile has ballooned to record levels during the dispute. The sale of Brazilian soybeans has lagged due to a fall in port premiums, raising the prospect for a lack of storage space for the country s winter corn, which is planted after the oilseeds are harvested. Soybean premiums started April at 40 cents per bushel & this is down from almost 70 cents in February and well below the $1 premium around this time a year ago, when the trade war between the United States and China began to escalate driving up demand for Brazilian soy. Competition from the United states, which has ample stocks, is also weighing on demand for the Brazilian oilseeds. Page 3

4 Mustard futures (May) S2 S1 Pivot R1 R Mustard futures (May) is expected to witness a consolidation in the range of levels. Lack of mustard meal exports and negligible crush margin is likely to keep the upside capped. As per the mustard meal export seasonality, the exports are mostly down in Dec-March period. Due to huge crop this year, opening a regulatory process to export Indian mustard meal to China stands a crucial requirement to save the farmers from sinking under pressure of bumper crop. Moreover, as the China has already banned Canadian rapeseed product recently, this could give India a golden opportunity to expand their export market. However, SEA officials in their recent publication stated that there might not be any exports to China till next year as the Export Formalities are too lengthy and cumbersome. With increase in prices and demand in physical markets, the average daily arrivals were again on higher side during last week. Daily average arrivals country was observed near 6.0 lakh bags vs. 4 lakh bags reported previous week out of which Rajasthan accounted for 3.5 lakh bags, MP accounting for 40 thousand bags, UP at 85 thousand bags, Haryana and Punjab at 50 thousand bags,gujarat at 25 thousand bags, while other states contributing for 50 thousand bags. However as more than 9 of crop is finally harvested across country, one might observe gradual decline in arrival pace in coming weeks. As per seasonal cycle also, mustard arrivals pace is usually at its peak in March and slowly starts diminishing from April month onwards. Decline in arrivals pace shall resist any significant fall in coming weeks. Going forward, prices may get some support from government procurement at the minimum support price (MSP). The Rajasthan governent is planning to buy about 9 lakh tons of mustard directly for farmers at MSP from this month onwards. Moreover, expectations of good crushing demand on improving meal exports to Korea, Thailand and Vietnam will support prices to rebound. Considering overall fundamentals, mustard futures are likely to trade in range bound with upside bounce in coming weeks with improvement in crushing demand and decline in arrival pace. Page 4

5 Edible oil complex (Domestic Fundamentals) Commodity S2 S1 Pivot R1 R2 CPO (April) Ref. soy oil (May) CPO futures (Apr) on the national bourse has shown a stellar performance on the back of rising palm oil prices in the Malaysian market & weakness in rupee against dollar. Going ahead, more upside can be seen in the counter for 575, taking support near 535 levels. The market participants would be keeping their fingers crossed ahead of the palm oil data which will be published by the Malaysian Palm Oil Board after 04:30 GMT on April 10. According to a Reuters survey, it is estimated that Malaysia s palm oil stockpiles likely dropped during March to less than 3 million tonnes and the lowest mark in five months. Refined soy oil futures (May) is also expected to move higher towards 755, maintaining its 5 month support levels near 715. A weaker rupee against dollar may keep the imports restricted. Edible oil complex (International market fundamentals) Commodity S2 S1 Pivot R1 R2 CPO futures (June) U.S soy oil (May) CPO futures (June) is likely to trade with an upside bias in the range of MYR/ton. Palm oil market traded weak during last couple of months with the burden of huge carry forward stocks reported both at Malaysian and Indonesia front in the beginning of As per MPOB reports, the ending stocks at Malaysia in Jan and Feb 2019 were observed close to 3.0 and 3.04 million tons. Similarly, GAPKI in Jan 19 stated Indonesian stocks at 3.02 million tons. However, the overall price trend reversed when GAPKI recently stated Indonesian Feb 19 stocks falling to 2.5 million tons, much below the market expectations of 2.8 million tons and depicting a strong fall of 17% on monthly basis. As of now palm market has over reacted negatively merely looking at total stocks figures specifically at Malaysia which was above psychological level of 3-million tons. Page 5

6 The market hasn t realized yet that thought there was huge stock piled up at Malaysian front, but the total stocks of Indonesia and Malaysian are not at a very significantly high level. Along with that, rate of increase in total consumption is much higher than the stocks availability. Moving forward, the total stock at both major nations, Malaysian and Indonesia is likely to decline further by 1 on monthly basis to 5 million tons in March 19. With rising exports demand by 25% on m-o-m basis in March, one might notice further decrease in stock to consumption ratio. Malaysia s palm oil stockpiles likely dropped during March to less than 3 million tonnes and the lowest mark in five months, according to a Reuters survey, as a hefty jump in exports outpaced production gains. A confirmed dip in the stockpiles would support benchmark palm oil prices, which hit a threemonth low in March before recovering on expectations of firmer demand. The expected ease in inventories was attributed to stocking activities and demand ahead of Ramadan, the Muslim fasting month that begins in early May this year and which sees devotees break day-long fasts with communal feasting. This increases palm oil use for food and cooking. Importers typically stock up on the edible oil one to two months ahead of the festival. Palm oil shipments from Malaysia are pegged to come in at 1.63 million tonnes for March, a 23.4 percent rise from the previous month. The monthly gain, if confirmed by official data, would be the strongest in six months. On the other hand, output in March is expected to have risen for its first gain after four months of declines. Survey respondents estimated that output rose 6.8 percent from February to 1.65 million tonnes. This would be the highest for March for Malaysia in Refinitiv Eikon records back to January Apart from demand-supply, the only threat to palm oil industry is from EU consumption demand. Recently, the European Commission (EC) concluded that palm oil as a transport fuel must be phased out as the commodity s cultivation is seen causing excessive deforestation. In many countries, including Europe, palm oil is converted into bio-diesel and blended with mineral diesel in an attempt to promote renewable fuel as an alternative to mineral oil. However, the EU concern of phasing out palm completely is a very long-term plan, starting in Thus, to conclude palm market prices are likely to recover from the current levels and shall trade with positive bias in coming couple of months. U.S soy oil (May) will possibly trade range bound within cents per pound Page 6

7 CFTC POSITION U.S SOYBEAN OIL SEASONALITY OF OILSEEDS 2 10 Year Historic return of Soybean futures (NCDEX) in the month of April 17.47% 18.42% 15% % 7.99% 10.81% 5% 3.29% 2.77% 0.15% -5% -2.07% -2.32% Page 7

8 14% 12% 12.39% 10 Year Historic return of U.S Soybean futures (CBOT) in the month of April 12.11% 1 8% 7.13% 6% 4% 5.15% 4.48% 4.56% 2% -2% 0.54% -0.08% -0.67% -1.24% % Historic return of RM Seed (NCDEX) in the month of April 12.18% 1 5% 2.64% 4.91% 2.25% 5.77% 0.32% -5% -3.81% -6.33% Page 8

9 5% 10 Year Historic return of Soybean Oil futures (NCDEX) in the month of April 4.48% 4.53% 4% 3% 2% 3.23% 1.85% 2.07% 1% -1% -2% 0.34% -0.19% -3% -4% -5% -3.88% -2.55% % % Historic return of Soybean Oil futures (CBOT) in the month of April 11.56% 5% 3.58% 1.91% 2.5-5% % -2.34% -2.78% -5.67% -7.07% Page 9

10 25% 23.05% Historic return of CPO futures (MCX) in the month of April 2 15% 1 5% 1.81% 2.06% 4.93% 2.06% 0.18% 6.07% -5% -2.26% -4.14% -1.33% % 1% -1% -2% -3% -4% -5% -6% 0.08% 10 Year Historic return of CPO futures (BMD) in the month of March -1.68% 1.11% -3.87% -0.42% -2.91% -4.84% -5.22% Page 10

11 FORWARD CURVES OF OILSEEDS 4050 Forward Curve of Soybean Futures (NCDEX) (Rs./Qtl.) Apr May Jun Jul Aug Sep Oct Nov Forward Curve of U.S Soybean futures (per bushel) May July Aug Sept Nov Page 11

12 3,950 Forward Curve of Mustard futures (NCDEX) Rs./Qtl 3,930 3,910 3,926 3,890 3,870 3,850 3,873 3,830 3,810 3,820 3,790 3,770 3,750 3,781 Apr May Jun Jul Forward curve of CPO futures (MCX) Apr May Jun Jul Aug Page 12

13 Forward Curve of Refined Soy oil futures (NCDEX) (Rs. 10/Kgs) Apr May Jun Jul Aug Sep Oct Nov Forward curve of U.S Soybean Oil Futures (Cents per pound) May July Aug Sept Oct Dec Page 13