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NCDEX soybean futures to see downtrend, price may drop to Rs 3,300

Harvesting of soybean in the US, a major producer like India, is also expected to begin from September and can pressure spot and future prices.

August 21, 2020 / 02:40 PM IST

Sumeet Bagadia

Soybean is a kharif crop sown during the June-August period in Maharashtra, Madhya Pradesh and Rajasthan. The crop is harvested between October and December.

Gujarat, Haryana and Chhattisgarh are the other states that grow soybean but in smaller quantity. Sowing depends on the monsoon season and the distribution of rainfall.

Sufficient rain with a good amount of moisture in the soil improves the yield. Price also plays a critical role in determining the extent of sowing.

Higher spot and future prices along with minimum support price (MSP) are announced to encourage sowing. Lower prices can lead to farmers switching to cotton, maize and castor seed.

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Refined soya oil is a byproduct of soybean and is traded on the National Commodity and Derivatives Exchange( NCDEX). Soymeal, another byproduct, is mainly used in the domestic market as an organic fertilizer or cattle feed.

The United States, Argentina and Brazil are the other major soybean producers.

India is among its top exporters and NCDEX prices have a direct relation with those of the Chicago Board and the International Commodity Exchange. Unlike soybean, India imports refined soya oil in large quantities.

NCDEX Soybean futures traded mixed in July as well in August, so far, owing to good monsoon and higher sowing in Madhya Pradesh and Maharashtra. There have been reports of 5-10 percent higher sowing in the United States and the crop is blooming at 85 percent, higher compared to 68 percent in the corresponding period last year.

Future prices remain supported from the lower levels as China continues to buy US soybean in accordance with the so-called Phase One trade deal.

On August 18, NCDEX soybean futures closed at Rs 3,768 per quintal, compared to Rs 3,714 per quintal by June 30.

In the coming month, we expect NCDEX soybean futures to trade bearish, as sentiments in the domestic market continue to be favour a good crop.

Soybean sowing and yield is expected to witness incline by 15-20 percent compared to 2019-20 in Madhya Pradesh, Maharashtra and Rajasthan. Harvesting in the smaller states is expected to begin by the first week of September.

Prices could also find support from the lower levels as the Centre is likely to raise import duties on vegetable oils such as soybean oil, based on recent sources to make India more self-reliant. This could possibly reduce the imports of soybean oil from the US, Argentina, Brazil, Indonesia and Malaysia and eventually increase the demand for soybean crush in the domestic market.

But then domestic traders and industrialists have also pointed out that the export demand for soybean meal has been lower and will continue to be the same in August, capping  a major upside movement.

In the US, harvesting of soybean will begin in September as well and is expected to pressure spot and future prices. Overall, we expect a bearish trend in NCDEX soybean futures and prices are expected to touch Rs 3,300 per quintal in the month ahead.

(The author is Executive Director at Choice Broking.)

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sumeet Bagadia is an Executive Director at Choice Broking. He is a technical analyst and gives view on equities, commodities and currencies. Earlier he was the head of Commodities & Currencies Research at Destimoney Securities Pvt. Ltd; AVP - Commodities & Currency at CD Equisearch Pvt Ltd; Senior manager at Commodities & Currency at CD Equisearch Pvt Ltd; Regional advisor at Commodities & Currency at Sharekhan.
first published: Aug 21, 2020 02:36 pm
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