Soybeans Hurt by Weak India Rain to Spur Cooking Oil Imports

Jul 08, 2014 7:39 am ET

(Updates prices in 12th paragraph.)

July 8 (Bloomberg) -- The soybean crop in India may tumble to a five-year low as the weakest monsoon since 2009 delays planting, potentially boosting cooking oil imports to a record in the world’s largest palm buyer.

Production could decline 7.9 percent to 11 million metric tons in the year beginning Oct. 1, said Dinesh Shahra, managing director of Ruchi Soya Industries Ltd., the largest cooking oil importer. That would be the smallest since 2009-2010, according to the Agriculture Ministry. Vegetable oil purchases, including for industrial use, may climb 12 percent to 12 million tons in the year to October and rise further in 2014-2015, he said.

Planting of crops from soybeans to rice has been delayed by a 42 percent deficit in monsoon rainfall, which accounts for more than 70 percent of annual precipitation. A smaller oilseed harvest will cut domestic supply of cooking oils and increase dependence on imports, potentially stemming a decline in global palm and soybean oil prices.

“Farmers are struggling for quality seeds and unusual dry weather can take away the yield potential,” Shahra said. “Looking at the current scenario, India would not have much choice than to import amid domestic crop issues.”

Soybean plantings fell to 445,000 hectares (1.1 million acres) by July 4 from 4.3 million hectares a year earlier, the Agriculture Ministry said yesterday. Rainfall over Madhya Pradesh state, which represents about 60 percent of the soybean crop, was as much as 78 percent less than the 50-year average since June 1, according to the India Meteorological Department.

Drought Odds

The chances of a drought in India have increased to 60 percent from about 25 percent in April amid forecasts for El Nino, Skymet Weather Services., a New Delhi-based private forecaster, said last week. An El Nino will reduce monsoon rain and may hurt crops from cotton to sugar and rice, Newedge LLC said in a report dated June 5.

“We have had a slow start this year and with every day’s delay in planting the concerns over loss of productivity increase,” Rajesh Agrawal, a spokesman at the Soybean Processors Association of India, said by phone from Indore. “The planting window is open till the 15th and can extend till the end of this month. The distribution and timeliness of the rains are very critical.”

Prospects for a smaller crop and rising demand are set to boost cooking oil imports to 11.1 million tons this year and to 11.7 million tons to 11.8 million tons in 2014-2015, Govindlal G. Patel, managing partner of G.G. Patel & Nikhil Research Co., said on June 26.

Price Spreads

“The total volume would rise but contribution of oils would be a function of price spreads,” Shahra said. Palm imports in 2013-2014 are set to drop for the first time in four years to 8 million tons from 8.3 million tons a year earlier because of the narrowing discount to soybean oil, he said.

The gap with soybean oil averaged about $94 a ton this year from an average of $244 in 2013, data compiled by Bloomberg show. India imports more than 50 percent of its cooking oil demand, shipping palm from Indonesia and Malaysia and soybean oil from the U.S., Brazil and Argentina.

Purchases of soybean and sunflower oils are forecast at 3.3 million tons to 3.5 million tons this year, Shahra said. Imports were about 2.1 million tons in 2012-2013, according to the Solvent Extractors’ Association of India.

Palm Outlook

Palm oil for September delivery fell 1.2 percent to 2,384 ringgit ($751) on the Bursa Malaysia Derivatives today. Prices have dropped 9.5 percent this year on concerns that output will increase in Indonesia and Malaysia, the world’s biggest growers, boosting inventories.

“Amid production improving in Malaysia and Indonesia, the prices have to be competitive relative to soybeans to make spreads attractive for higher consumption,” Shahra said. “The narrow spreads would destruct demand and result in buildup of stockpiles. We are assuming limited moves in palm.”

Palm may rally less than earlier forecast as demand misses estimates and an El Nino starts later than expected, according to Dorab Mistry, director at Godrej International Ltd. Futures may climb to 2,800 ringgit by December if the weather event occurs from mid-August, Mistry said on June 26, cutting his March 5 forecast for a run-up to as high as 3,500 ringgit.