Soybean July contract likely to touch Rs 3,850/quintal by end of this week
02.07.2020 (Moneycontrol.com) - CBOT soya complex was up significantly and its impact was observed in domestic market also, but near term upside will be limited
Agri markets recovered from the early fall in prices as the IMD declared Monsoon to have covered the entire country on June 26. The normal date for Southwest Monsoon to cover the entire country is July 8 – as per its statement. Therefore, the Southwest Monsoon this year has covered the entire country 12 days prior to the normal date.
This news was bearish for the agri commodity prices. Kharif crop sowing generally starts after the initial showers. Any early arrival of Monsoon rains is good for the crop sowing, its sowing area, the overall productivity and ultimately, generally leads to better production prospects. Though the overall crop production would depend on the rains during the entire Monsoon season.
Prices, however, started recovering from the middle of the week. As mentioned in our earlier report that any bearish news would have limited impact on the prices. Most agri prices have already fallen a lot over the last few months since the COVID-19 season started. Further major fall in prices may be unsustainable. Finally, as of now, even as Monsoon covers the entire Indian sub-continent, the overall rains in the critical areas of North-West and Central India still show some deficiency in many areas.
As the lockdown phase gradually gets over, the trading activities are expected to pick up in the coming weeks and months. Traders expect the exports could gradually recover. Aided by a firmness in Dollar versus Rupee, this could lend further support to the export front – and hence the prices.
Oil complex: Trend look up for the sector as fundamentals remain strong.
Refined Soybean Oil:
Strong global cues helped entire oil complex futures reverse last few days' losses. CBOT soya complex was up significantly and its impact was observed in domestic market also. Import prospects of Malaysian palm oil remain better from India while soyabean fundamentals are positive. Therefore soya oil may see more or less firm trend this week, although with capped upside.
The trade relation between India and Malaysia has improved of late, and Indian importers have resumed purchases of Malaysian palm oil last month onwards. Media reports said that large importers have finalized contract worth 2 lakh tonne of crude palm oil from Malaysia, during first fortnight of May. As per MPOA (Malaysian Palm Oil Association), production in May month can be lower versus previous month. Production losses in recent months has been mainly due to labour shortage problems due to the lockdown.
Therefore, palm oil is expected to trade with positive tone this month and shall be a positive price driver for soya oil also. Also, soybean downward trend may cease in next few days and will be positive for soya oil as well. Lowering trade war issues between US and China will be another supportive factor moving forward. July contract likely to touch Rs 820-825 per 10 kg mark by end of this week.
Soybean
CBOT soya complex was up significantly and its impact was observed in domestic market also. But near term upside will be limited as buying amongst poultry units is poor due to nominal query for the processed poultry products. It is worth noting that speculators at CBOT are expecting a recovery soon on improved prospects for US trade with China.
The money managers are maintaining a bullish stance from longer perspective. In the week ended June 23, they have increased long positions in CBOT soybean futures and options to 44,285 contracts from 21,183 a week earlier. Traders have been increasingly enthusiastic about US soybean exports to China as purchases have been relatively strong this month, and unlike corn, US soybean supplies are not expected to explode over the next year.
On the domestic front, limited arrivals in mandis and lower deposits in the exchange warehouses shall be responsible for keeping speculative buyers active in futures markets during this month also. Soybean July contract likely to touch Rs 3,850 per quintal on the upper side by end of this week.
Markets remain Bullish for the agri sector prices with intermittent profit booking noted at the higher levels. Good monsoon reports are limiting the recovery in prices as of now, but we expect that to be for the short term only. Long term trend remains Bullish.
The author is VP - Retail Research at Religare Broking.