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Investment Guru India 2018-07-11 11:49:15

Agri-Fundamentals

Soybean

NCDEX Jul Soybean closed lower on technical selling by market participants on hope of good sowing progress in coming weeks. Pace of sowing increase last week and now the deficit is only under 4% on year which was 48% in previous week. The area under soybean in the country was at 51.64 lakh ha as of last week, according to data released by the farm ministry. In Madhya Pradesh, area under soybean was at 28 lakh ha, down from 29 lakh ha on year. However, the acreage so far is higher than the normal area for the corresponding period, based on the average of last five years. As per latest report by SOPA, soymeal exports rose 22.5% on year to 136,000 tn. During Oct-Jun, the soymeal exports are estimated at 13.6 lakh tn, against 16.3 lakh tn in the year-ago period. The cabinet raised the minimum support price for soybean by 11.4% to Rs 3,399 per quintal but the futures have been higher than MSP. 

CBOT Nov Soybean futures closed higher due to bargain buying and good exports figures. The Export Inspections report showed soybean shipments of 654,834 MT in the week that ended on July 5, down 22.9% from the previous week but 37.24% more than the same July 4th week last year. Actual May export data shows that 2.991 mt of US soybeans were shipped during the month, more than twice the same month last year. CONAB report showed projected soybean Brazilian production at 118.88 mt, up 830,000 MT from the previous estimate. Bloomberg reports show that China plans to reimburse tariffs amounts to importers who buy US beans IF they are meant for State reserves.

RMseed (Mustard seed)

Mustard Jul futures saw some fresh selling by market participants after it touched 4 months high in the previous session. It jumped 3.1% on first 10 days in July on anticipation of improved meal and crushing demand. Recently, government increase import duty on soft edible oil by 10-15%. Mustard oil mills across the country crushed 650,000 tn of the oilseed in June, down 27% from previous month as per data release by Mustard Oil Producers Association of India. According to SEA latest export report, mustard meal exports during first 2 months of 2018/19 is higher by 90% on year due to higher demand from South Korea.

Outlook

Soybean futures are expected to trade sideways on expectation of higher sowing due to forecast of normal rains. However, there is steady improvement in demand from the oil mills after government increase customs duty on crude as well as refine soy oil to 35% and 45% respectively.

Mustard futures expected to trade sideways to higher on mixed fundamentals of steady supplies and demand. But expectation of recovery from the lower levels due to higher crushing demand and improved meal exports will support mustard prices.

Refine Soy Oil

Refined Soy Oil Jul Futures closed little higher on Tuesday due to fresh buying and tracking firm prices of soybean in the physical market. However, weaker rupees and improving demand from the physical market participants is keeping prices sideways.

For the first fortnight of July, the base import price of crude soyoil has been cut to $750 per tn from $752 per tn by the govt. As per SEA monthly report, as on June 1, country' edible oil stock (in ports and pipeline) is at highest level ever at 26.6 lt putting pressure on domestic prices of edible oils.

As per the data from SEA, in May, for the first time, import of soft oils--soybean, sunflower and canola--was higher than palm oil, where the share of soft oils was at 60%. The rise in the imports of soft oil was primarily due to expectation of a rise in import duty.

Crude Palm oil

MCX CPO closed little lower on Tuesday tracking weak trend in palm oil in Malaysia and expectation of improved demand for edible oil in the country. However, prices have been in a range due to weaker rupees and steady domestic demand. The government has slashed the base import price of CPO and RBD Palmolein by $26to $618 per ton and $27 to $646 per ton respectively.

According to SEA monthly update, palm oil imports into the country were down 33% and 46% for CPO and RBD Palmolein in May compared to last year. India’s palm oil imports dropped in May due to higher taxes on shipments while weaker rupees making imports expensive. Palm oil accounts for the bulk of the total edible oil imported annually, with most of the commodity imported from Indonesia and Malaysia.

Malaysian palm oil futures fell more than 1% to a two-year low on Tuesday on lower exports figures and higher stocks in Malaysia. The Malaysian Palm Oil Board (MPOB) data also showed end-stocks in June rose 0.8% from the previous month to 2.19 mt, while exports declined 12.6% to 1.13 mt. Malaysian palm oil shipments during July 1-10 also fell 14.4% from the corresponding period last month. However, the prices are still under pressure due to higher palm oil stocks and reports of improved production in coming months. June production fell 12.6% to 1.33 mt versus the previous month, according to data from industry regulator the MPOB on Tuesday. Output is expected to rise in July and throughout the third quarter of the year, in line with seasonal trends.

Outlook

We expect Ref Soy oil to trade sideways on due to steady physical demand and higher edible oil stocks. However, weaker rupees and increase in import duty on refine and crude soy oil may keep the prices higher.

CPO futures may trade sideways on higher domestic stocks and steady domestic demand from the stockists. However, bargain buying may keep the prices supportive.

Chana

Chana Jul futures ended lower due to profit booking after it surged more than 9.8% in first 10 days in July. Prices surged as government has extended the imports of dry peas for three more months which increase the physical demand from the traders and stockists. New notification says that pea import can't take place till 30 Sep 2018. It is applicable for all peas. Government has tried to keep the prices higher by removing export restrictions and procuring at MSP. According to govt officials, MP has completed procurement of 1.8 mt of rabiharvested chana and masur. Earlier, govt has announced of a 7% duty credit incentive on exports. Recently, Maharashtra govt discontinued procurement of the chana under the MSP scheme due to shortage of warehousing space and packaging bags.

Outlook

Chana futures may trade sideways due to some selling pressure at higher levels. However, improved physical demand may keep the prices supported at current levels. 

Cotton / Kapas

MCX Jul Cotton closed unchanged on Tuesday on expectation of increased cotton area as monsoon rains have now covered entire country. Cotton acreage till last week was down by 24% on year to 54.60 lakh hac, according to the farm ministry data. In Maharashtra, the largest producer, the area under the crop was down 10.3% on year at 19.6 lakh ha as on last week while acreage in Gujarat, another major grower, was down 61.1% on year at 492,900 ha due to deficient rains.

However, market participants are expecting higher imports in coming months as government increase minimum support prices for cotton by 26-28%. MSP of cotton (MS) has been raised to Rs 5,150 from Rs 4,020 and that of cotton (LS) to Rs 5,450 from Rs 4,320 per quintal. There are reports of good export demand and lower pace of kharif sowing in the country.

ICE Cotton rose to a three-week high on Tuesday, supported by deteriorating crop conditions in US due to dry conditions and good exports demand. Monday’s Crop Progress report showed that 51% of the Texas crop was squared as of Sunday, with 18 setting bolls, both ahead of normal. Condition ratings in TX were down 14 points to 268, with the overall ratings at 313. Census data shows that 433,071 MT (1.989 million 480-lb bales) of cotton was exported in May, 25.44% more than last year. Moreover, weekly exports were up 36.07% from last year at 411,615 RB.

Outlook

Cotton futures are expected trade sideways to positive on higher demand and increase in MSP by government but weak international prices and expectation of higher acreage of cotton due to good prices may keep prices sideways.

Spices (Jeera & Turmeric)

NCDEX Jul Jeera futures closed lower on profit booking at higher levels. It is currently trading at 4 months high on anticipation of good exports demand. Cumin futures have jumped 16% this month from the lows and more than 27% last quarter starting April supported by anticipation of higher exports from China and Bangladesh due to restricted supplies from Syria. According to export data released by Commerce ministry, Jeera recorded its highest monthly exports of 33,458 tonnes in March while in April the exports were 74% higher on year at 25,900 tonnes. During FY 2017/18, country exported about 1,60,479 tonnes of jeera, up by 24.5% on year. Jeera arrivals during 1-15 Jun are pegged at 7,780 tonnes compared to 5,055 tonnes last year for same period.

NCDEX Jul Turmeric closed lower due to fresh selling on Tuesday as market participants are expecting higher acreage of turmeric in Andhra Pradesh and Maharashtra following good rains this monsoon. In June, prices have surged more than 3.7% on expectation of lower supplies in coming months. Supplies from the new season turmeric have been lower during June at 16,691 t (Vs 27,710 t) compared last year, as per Agmarknet data. The export of turmeric was down by 24% at 10,462 tonnes in April 2018 compared to last years’ exports. Exports are lower by 15.5% in first 4 month of current year compared to last year.

Outlook

We expect Jeera futures to trade sideways to higher on expectation of improved physical and exports due to good demand from China and Bangladesh. There are chances of profit boking at higher levels. Turmeric futures expected to trade sideways to lower on reports of improved sowing turmeric growing areas of Tamilnadu, Karnataka and Maharashtra. 

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