4/4/06 Mumbai (Business Line)  - Contrary to expectations of strong prices following unusually shrill hype about bio-diesel demand over the last several months, the global vegetable oil market is now bracing itself for soft prices, aided by a large soyabean crop harvested in South America and mounting stocks of palm oil in Malaysia.

The latest information to add a bearish tinge to the already timid price-line is the report on Perspective Plantings from the US Department of Agriculture according to which US farmers intend to plant an estimated 31.1 million hectares of soyabean in 2006, up 7 per cent from last year's acreage.

In 2005, the US harvested a record 85 million tonnes of soyabean, despite initial apprehensions of Asian rust disease hurting the crop. Soyabean stocks (stored on farm) are estimated at a record high of 23.7 million tonnes, up 10 per cent from a year ago, while off-farm stocks are 21.7 million tonnes, the agency has reported.

For the present, bears seem to be in control of the soyabean market. The situation is unlikely to change anytime soon. However, weather conditions in the US during the growing period between June and September would be crucial.

Energy prices

The strong possibility of an expansion in soyabean acreage can be attributed to high energy prices. Acreage is likely to shift from corn to soyabean, because of energy price implication.

Energy price is a bigger factor for corn than soyabean, causing farmers to switch acres back to soyabean that would normally have gone to corn. In the last two seasons there was some shift of acreage from soyabean to corn because of the threat of Asian rust disease on the former.

As of now, the market fundamentals remain bearish. Progress of weather, acreage and related factors in the US, China and India till September would be watched closely. For palm oil, the peak production season starts from April.

Domestic outlook

In the domestic market too prices are unlikely to rally because of the ongoing harvest of summer oilseed crop and large stock with the government agency. India Meteorological Department's forecast of 2006 southwest monsoon is keenly awaited.

The issue of labelling genetically modified food products has added a new dimension. It has come in handy for many domestic players to liquidate their stocks. How serious the government is in implementing the policy remains to be seen. There is belief that overseas interests would do everything possible to scuttle the move.