Soybean rangebound sans buying support

ANALYST'S VIEW

Caught in the tussle between bulls and bears, soybean futures are likely to remain rangebound between Rs 1,575 and Rs 1,595 a quintal for October delivery on the NCDEX, according to analysts at Kotak Commodities. But the overall sentiment is set to remain bearish.

Banking on Indian traders' export commitments of 6 lakh soybean meals to be executed by December this year, bulls are pumping fresh money anticipating a rise in the prices.

Bears, in turn, are responding aggressively through higher estimated output. New crops have already started arriving, with mandis in Madhya Pradesh reporting a total average arrival of 4 lakh bags of 90 kgs each. Maharashtra and Rajasthan have witnessed arrivals of 2-2.25 lakh bags and 70-75 thousand bags respectively.

The production of soybean crop in the country is expected to be around 8.6 million tonnes this year, up from 7.6 million tonnes last year.

There is a demand for soybeans as millers have to fulfill meal export commitments. But large arrivals would offset this bullishness. The arrival of bean is expected to rise in the coming weeks as farmers would need cash for rabi cultivation and during festivities such as Dusshera, Diwali and Idd.

Another domestic factor that could drive the soybean prices lower is the production of other oilseeds. The output of groundnut during both kharif and rabi seasons last year was 5.35 million tonnes (in shells). The kharif crop is expected to be around 5.2 million tonnes (in shells) this year. Hence, the quantum of rival oilseeds would further cap the bean prices.

The only factor that could offset the domestic bearishness is a huge demand for soybeans in the international market.

China's soybean output is expected to fall this year due to a drought. Moreover, dry weather is prevailing in the southern hemisphere, where soybean cultivators such as Brazil and Argentina are located. These conditions provided upside price risks earlier, but these seem to have been discounted now. There are currently no new price triggers. On the other hand, there are reports that the USDA's production estimate could be too conservative. USDA estimated soybean production at 2.62 million bushels, while the actual production could be in the range of 2.65-2.7 million bushels.

As far as weather in the southern hemisphere is concerned, the dry weather is expected to continue for another week or so. Rains in those regions would offset any speculative gains made in the international market.

Taking into consideration the domestic and international factors, the upside in beans is likely to be capped.

Soybeans October futures would find good resistance near the 1600 levels. The trend is downwards and hence it would be advisable to go short on every rise.

Soybeans closed lower on arrival pressures in the domestic market. The futures market also witnessed liquidation of longs.

The open interest decreased amid a rise in volumes. The soybean futures for the October delivery closed lower by Rs 24.5 to Rs 1,565.5 a quintal.

Meanwhile, soybean futures for November delivery were being quoted around $9.255 a bushel on the CBOT in the US markets.

The weather is almost clear and the conditions seem to be favourable for crop harvesting. Brazil, the second largest producer of soybeans, received rains over the weekend, improving soil moisture and making climate favourable for crop sowing.