Soybean crush margins dip despite spurt in oil prices

A dramatic erosion in crushing margins in the last four months has halved the operating capacity of soybean processing companies from over 90 per cent in October to 45 per cent now. Crush margin is the difference between the cost of production and realisation.

During the first week of October when harvesting of the kharif soybean was in full swing, crushing units were procuring seeds for Rs 1,850-1,900 a quintal. Considering the average 18 per cent oil recovery, refined soyoil was quoted at Rs 472 per 10 kg. As a result the processing unis were earning between Rs 400-500 a tonne of seeds crushed in October.

The prices of soybean has, gone up by over 24 per cent since then to trade at Rs 2,300 a quintal. Oil prices, meanwhile, have surged 31 per cent since the start of the season. But, the crush margin has declined to around Rs 100 a tonne and has adversely impacted the operations.

Subsequently, nearly 30-35 per cent units with an average crushing capacity of 200-250 tonnes per day have decided to close the units till existing stock of oil and cake is sold. However, the decision to do so has raised their operating costs by 15-20 per cent.

“When plants are in operation, cost of production remains 15-20 per cent lower due to various factors like 100 per cent manpower and factory utilisation. When plants are restarted, everything including manpower and plants & machinery remains idle, increasing overheads unnecessarily,” said J S Pangaria, executive director of Indore-based Soybean Processors’ Association (Sopa).

Processing units, however, had a set back in realising soybean meal for the exports market. The prices of the animal feed has declined marginally between October and December from $406 to $402 a tonne.

The production cost for mills has also increased significantly because farmers and stockists had released about 70 per cent of their stock and very little remains for the rest of the season. Crushing mills operate for 250-260 days and stock seeds in the first three months beginning October. Since the value of commodities keeps fluctuating between Rs 50-200 a tonne everyday, mills have been reducing production capacity consistently for the last couple of weeks, said Rajesh Agrawal, co-ordinator, Sopa. The soybean carryover stock is estimated to record an all-time low by the end of the current crushing season because farmers are reluctant to release oilseeds now expecting higher realisation.

A recent report by brokerage firm Nirmal Bang said carryover stocks is likely to decline to 226,000 tonnes this year against seven lakh tonnes last year. SOPA, however, said carryover stocks will be around six lakh tonnes. Soybean prices have posted negligible returns on domestic bourses, but on CBOT they have got returns of more than 30 per cent. This was so because the commodity is in high demand in China and there has been a dramatic fall in global soybean production forecast due to erratic weather.