Soy traders expect further duty cut

Traders are staying away from soyoil, as they expect a further reduction in the customs duty on edible oils in the forthcoming Budget. This has resulted in prices declining by Rs 2 a kg across all brands in the past one week.

As part of its strategy to keep inflation under check, the Union government had recently cut customs duty on edible oils up to 12.5 per cent. Refined soyoil in Mumbai, Indore and Gujarat is currently quoting at Rs 447/ 10 kg, Rs 435/10 kg and Rs 450/10 kg respectively.

According to Rajesh Agrawal, chairman, Soybean Processors Association of India (SOPA), the price decline can be mainly attributed to abundant supply of soya products and traders' scepticism in investing in the complex as expectations of further duty cut in the ensuing Budget remain.

He said that this was a temporary phenomenon that would be overcome soon. So, one can expect prices of soya products to recover after the annual budget is presented.

Despite estimates of lower oilseed output (2 million tonne) this year, sentiment in the soya complex is bearish mainly due to abundant availability of soya seeds and oils in the market. Soybean derivatives on NCDEX, too, slumped from Rs 1454.45/quintal on February 9 to Rs 1424.45/quintal on Monday.

But, according to a report by the Mumbai-based MAPE Admisi Commodities, the soya market would see a change in the sentiment due to the increased fund house participation in commodity trading and a supply shock led by world-wide production loss.

The report further added that world-wide ethanol demand is picking up and the best available raw material for ethanol is corn. This is reflected on the ground with corn getting more acreage this year.

There will be a huge shortage of soybean in the months to come, signaling a supply shock. The major soybean producing countries such as the US, Brazil and Argentina are already facing a supply shortfall and spiralling prices.

The standing crop in the US is reportedly facing a threat due to the El-Nino dry weather pattern. On the other hand, demand from China, the European Union and India is rising sharply. As per USDA documents released recently, ending stock of soybean for the coming crop year will total 688 million bushels compared with this year's record 575 million bushels.

Expecting a drop of 7 million hectare in acreage, the production in US could average 2886.52 million bushels for the marketing year 2007. The last year's average yield in the US had touched 42.7 bushels.

In addition to this, beginning stock of soybean is 575 million bushels netting total supply of about 3572 million bushels. That is, a net decrease of 176 million bushels.

Oilseed production in India is estimated to drop by 4.36 million tonne and being third largest importer of vegetable oil, this news could boost world oilseed prices in the near future. Recently, Indian officials pegged oilseed output for the year at just 23.62 million tonne from 27.98 million tonne last year.

According to industry estimates, India could import 5-5.1 million tonne of edible oil in the marketing year 2006-07, which is 15-20 per cent higher than last year.

Sources said increased biodiesel production could limit Brazilian soyoil exports this year to 2.1 million tonne. In the marketing year 2006, Brazil exported 2.47 million tonne of soyoil.

Last month, Brazilian soyoil exports totalled 100,000 tonne, down from 160,000 tonne in January 2006.