Soymeal demand estimate slightly better than earlier expectations
After production of a record 2012/13 harvest at 12.2 million tons, soybean crop in India has been adversely affected by consecutive unfavorable growing conditions during the past two years. Monsoon rains in August 2015 were much less in the top soybean production regions. Soybean yields in India saw a further reduction this year, due to deficit rainfall, which forced the USDA to lower its 2015/16 crop forecast by 1.5 million tons month to 9.5 million only. September month was mostly dry, while hot temperatures stressed soybeans during pod filling. Because of below satisfactory harvest this year, soybean crushing might be lower, which implies decreased production prospects of soybean meal and soybean oil. Besides that, as estimated by the USDA, a rapid growth in domestic consumption of soybean meal might result in Indian exports in 2015/16 dropping further and to a 28-year low of 7 Lakh tons.
For the last two decades, India has been consuming soybean oil and exporting the excess meal. However, growth in domestic poultry and egg production has increased demand for protein meal. Ironically, this rise in demand for soybean meal has coincided with a simultaneous drop in soybean production, tightening supplies and pushing local prices significantly above world levels. As a result Indian soybean meal exports, particularly to distant markets are most likely to remain discouraging like 2015. As per data released by the Solvent Extractors’ Association of India (SEA), oil meal exports during the period fell to 763,113 tonnes from 1.26 million tonnes for the corresponding period last year. Oil meal exports dropped to 13,716 tonnes, in the month of October 2015 alone, down by 94 per cent from 238,703 tonnes for the same month last year.
Monsoon uncertainty will always persist in a given year, and sadly speaking, not much effort has been taken to boost up production of soybean crop. At the same time domestic consumption of soymeal is rising consistently. All these factors seem to be the major hurdle for decreasing export market share of Indian origin soymeal. Due to falling exportable surplus in India, traditional importers such as Pakistan and Bangladesh are importing more soybeans from the United States and Brazil for domestic crushing to replace a lack of Indian supplies. Processors in China are also exporting more soybean meal to Asian countries traditionally served by Indian suppliers.
Summing up, lower surplus of soybean meal and strong global crush shall offset global meal demand quite comfortably. Hence soymeal prices in domestic markets might prefer moving in sideways trend in 2016. But there is a silver lining in the fact that Philippines has banned import of GMO soymeal. Since Indian soymeal is of Non-GMO origin, it has an edge to export in greater quantity to Philippines next year. Hence the downside might not be to the extent, as estimated earlier. Market estimates for 2016 soymeal production are coming between Rs. 28000-40000 per tonne for year 2016.
Higher projections for maize import in 2016
Major cash markets of maize traded firm during the last quarter, mainly because of feed makers demand and in general the price trend was inclined upwards. According to the latest FAO’s assessment, global trade in maize might fall by 0.9 percent from the previous season’s peak to 127.5 million tonnes. Lower imports by the Islamic Republic of Iran and Mexico seem to be the major cause of fall in global maize trade. FAO added that as compared to 2014/15, the world coarse grain usage would be only marginally higher with feed use reaching 743 million tonnes, up by 1.3 percent from the previous season.
Stocks in Bihar/Andhra running lower year on year
Looking at the domestic market, total estimated stocks in GulabBagh, was between 20000 MT and 25000 MT till end of November. In November 2014, total stocks in Gulab Bagh was reported at 60000-70000 MT. Traders estimate conveys that in Bihar, net maize stocks might be roughly 60000-63000 MT. Last year total stocks stood higher at 1.1-1.20 MT. In A.P, maize stock position was estimated around 1,10,000 MT, i.e. 50000 with private bodies and 60000 with the Government. Last year, total stock was around 1.15-1.20 lakh tonnes (30000-32000 MT with Private bodies/traders and 86000-88000 MT with the Government). Likewise in Nizamabad centre net maize stocks in the Government’s warehouse is around 14000-15000 MT while Private traders are reportedly having 10000-12000 MT. All the estimated figures are as per data/information available till November end.
The Indian corn is lowered by 500,000 tons by the USDA. Therefore the 2015 crop might be smallest since 2009/10. World corn production for 2015/16 is lower with reductions for India and South Africa more than offsetting the gain for Canada. Global trade is little changed overall. Exports are raised for Brazil and Canada but lowered for the United States and India. The U.S. season-average farm price is unchanged.
Overall there is remote chance of prices, in general to be under pressure in 2016. Kharif sowing is already adversely affected. The sowing figures as on September 27 shows net cropped area of Maize at 20 lakh hectares versus 22 lakh hectares during the last season. Poor monsoon this year is constantly generating worries over productivity of the Rabi crop. This would mean that the winter season maize from Bihar and Andhra can be lower year on year. But the bigger picture of crop size will be more transparent after a month. Imports are likely to occur this year due to significant draw down of the carryover stocks and diminishing supplies from a reduced crop in 2015.
Trade sources say that govt. has given a proposal to import nearly 13 lakh tons of maize. The decision to import duty may be slashed from 30 to 3 percent soon. The sowing area of the Rabi crop in Bihar is expected to increase by around 15-20% due to shift from wheat to maize.On the other hand the new season starting from October has commenced with approximately 3.51 MMT of opening stocks. This year’s maize production in India could be around 22.62 MMT in 2015-16 against our yearly total demand of 19.20 MMT.
The latest government data available for kharif maize shows total area of 6.75 lakh hectares (as on 27th November,2015). This is higher by 1.10 lakh hectares than the corresponding period of last year. According to Agriculture ministry report, sowing of the Rabi maize in Bihar state was at 141,000 hectares as on 27 November 2014, indicating a massive growth of 781.3% from merely 16,000 hectares planted last year in the same period. Till now sowing area remains better than last year.
Total availability goes up to 24.06 MMT in 2015/16 with an estimated carryout of 3.51 MMT. Meanwhile net demand including domestic and export could be around 18.40 MMT, therefore giving indication about closing stock to be 3.42 MT. Hence as per the table given below, the closing stocks are most likely to be slightly lower versus that of 2014-15 marketing year (beginning from October 1).
Considering the above aspects, near term outlook will be positive for prices, yet sharp long lasting rallies seem unlikely for maize in medium term say next 3-4 months. Improving import prospects and reports of better than expected sowing area versus last year shall be the key factors in controlling the upward price movement in 2016. In case the productivity drops, then the long term outlook will immediately turn in favor of a strong upward trend.
by Abhijeet Banerjee, Religare Commodities