 "Higher edible oil prices despite record production")
Edible oilseed production for 2016-17 (kharif and rabi) is forecast to be an all-time high of 35 million tonnes (mt) on account of record soybean production of around 11 mt.
Globally, too, the US department of agriculture (USDA), has forecast the total oilseed production to be 548 mt, a record. However, this is not reflected in lower edible oil prices because of acute shortage in palm oil supply, the largest and cheapest edible oil. Last year, El Nino weather effect has, for the first time in 17 years, reversed a rising production trend of palm oil.
Stocks have now declined to a five-year lows and the impact of improved production will be felt only by mid-2017. The global edible oil balance sheet, as given by USDA, is the tightest since 1977-78. Thus, record oilseed supplies will be absorbed by consumers due to relatively lower price premiums of soft oils vis-à-vis palm oil prices.
In India, sharp recovery in total oilseed production will improve the domestic availability of the edible oils at five mt — an increase of 22.5 per cent over last year – and could result in a marginal dip in annual imports. India is largely a price taker of the edible oil prices as the country needs to import 60 per cent of its annual vegetable oil demand. As a result, the domestic edible oil prices will follow global prices.
Globally, the demand for palm oil enters a lean phase in the fourth quarter of 2016 and, hence, the prices could see a small correction in the near term. Soft oils during this time will remain range-bound to firm due to upbeat demand.
Weather vagaries in South America and robust export demand for US bean are also price-supportive . Potentially, a larger South American crop, along with improved availability of palm oil by mid-2017, will cap the upside to the prices.
The Indian soybean scenario is peculiar to some extent. Indian soymeal exports shrunk from four mt in 2012-13 to 163,000 tonnes in 2015-16.
Due to this, the soybean stocks have become burdensome. India will need to export some large quantity of soy meal to reduce this burden. Prices have already fallen 36 per cent from its peak in April 2016, but Indian exporters have lost market share in recent years and regaining it will be difficult. Thus, seed and meal price scenario remains extremely bearish. Being a meal crop, soy oil prices will remain supported for the crushers to maintain the crush parity. If for some reasons soybean and meal prices do not correct, crush would be lower and will affect the domestic availability of soy oil resulting in higher total edible oil imports. The price scenario remains unchanged, though.
The current market price of soy oil (Mumbai) is around Rs 665 per 10 kg and is expected in the range of Rs 650-690 with a slightly positive bias. Current crude palm oil prices (Kandla) are Rs 524 per 10 kg and are expected to be in the range of Rs 490-540 with a downward bias.
The author is vice-president, research,edelweiss Agri Services and Credit,edelweiss Agri Value Chain
