Oilseeds and Edible Oil Update

Monday | September 16, 2013

Content
Soybean Refine Soy Crude Palm Oil

Prepared by
Vedika Narvekar Chief Manager- Agri Commodities vedika.narvekar@angelbroking.com (022) 2921 2000 Extn. 6130

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

Incessant rains, Currency crash and resurgence in the international prices- a big bang for domestic Edible oil markets
Vagaries of weather are beyond control and this time it is the excessive rains that have caused damage to the standing crop. Kharif crops were adversely impacted by deficient rains Last year, while on thecontrary, prolonged excess rains have damaged crops in current year. Oilseeds are no exceptions and soybean is the worst affected kharif crop where water logging has caused yield losses in the major growing areas. Output concerns have pushed up oilseeds and edible oil prices signifincalty in the last one month and Rupee depreciation added fuel to the rally. The Indian Rupee touched a record 68.93 level against the US Dollar and this has led to an increase in the cost of imported edible oil in the domestic markets. Global markets are no exceptions and there too oilseeds and edible oil prices surged due to dry weather in the US affecting soybean yield. Lower soybean in the US and thereby expected incremental demand for palm oil drove palm oil prices higher last month. Thus, after three consecutive months of losses, oilseeds and edible oil prices finally settled in green in the month of August. Outlook for September depends largely on the withdrawal of southwest monsoon in India and weather conditions in the US. If monsoon withdraws on its normal schedule, then further losses may be curbed and harvest shall commence by the last week of September keeping the prices under check. However, any divergence from the normal schedule may further cause yield losses and delayed harvesting, thereby keeping the upside intact. Edible oil prices are due for correction as the Malaysian crude palm oil will now enter the seasonally higher yield period and we may see increase in the crude palm oil availability from Malaysia. On the currency front, we expect Indian Rupee to witness appreciation considering various measures by the RBI and this shall provide some respite to the rising edible oil prices in the month of September.

Soybean Price Performance
Soybean prices in both the international as well as the domestic markets have recovered in the last month from their season’s low touched in July 2013. A brisk start to sowing in the domestic markets and record planting intentions in the US has exerted downside pressure on the soybean prices in the month of July. However, as mentioned earlier, weather vagaries are beyond control and thus excessive rains in August over the major sowing belts of MP caused damage to soybean crop in India and led to a sharp recovery in the prices last month.

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

A spillover effect of edible oil prices amid weakening domestic currency was also reflected in the soybean prices last month. In the second fortnight domestic prices were also buoyed by strength in the international markets. NCDEX Soybean October contract settled 21 percent higher in August and touched a high of Rs 3698 per qtl levels, while spot prices settled 16% higher month on month. In the international markets, the gains were comparatively limited as the losses made in the month of July were extended in the early part of August amid higher Soybean plantings. The recovery in the prices was seen only after mid August when prices touched their 11 month high as lack of rains and high temperature raised fears over soybean yield. The crop there is currently in the pod filling stage and is vulnerable to dry weather. Although improved weather conditions towards the end of the month restricted gains, prices still managed to post 4 percent monthly gains in August. Soybean acreage hit record in 2013-14 Soybean sowing which began on a brisk note in the month of June continued its pace throughout the sowing period amid above average and well distributed rains across growing belts. Acreage stands exceptionally higher by 14.4 percent yoy at 122 lakh ha and 27 percent higher compared with the 5 years average of 95 lakh ha. The soybean bowl of India i.e. Madhya Pradesh has covered largest area under this oilseed. The crop had been sown across 63.8 lakh ha as of last week, up 9.8 percent year on year. Rains in MP in the current season have been above normal. In Rajasthan, the crop had been sown across 10.6 lakh ha, up 7.2 percent year on year. However, there have been reports of crop damage due to excess rains in Vidarbha in Maharashtra and some parts of Madhya Pradesh. Vidarbha accounts for bulk of the country's total soybean output. Heavy and incessant rains have caused some damage to the standing soy crop in the month of August but later the situation improved and hence we expect output equal to last year’s level. Considering yield to maintain around the 5 years average of 1197 kgs per hectare, we expect soybean production to hover around last year’s level of 14 mn tn.

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

Soy meal exports witness a robust yoy growth amid competitive rates Soy meal exports from India stood at 1.83 lakh tonnes in the month of August which is significantly higher compared to 10000 tonnes exported in August last year. Higher Indian quotes last year had made soy meal exports from India unviable. However, in the current season rates are in tandem with the international markets and thus have made exports feasible. Almost 57 percent of the quantity exported was supplied to Iran in the month of August. Overall exports since the beginning of the financial year have however witnessed a decline of 15.8 percent. New crop deals of soy meal exports to hit 1 mn tonne in September Depreciation in the domestic currency along with tight supplies from US has attracted Indian soymeal in the past couple of months. Indian traders have so far signed export deals for 700,000 tn of new crop soy meal and the contracts are set to hit 10 lakh tn by the middle of this month. New crop soy meal is being struck at $470-$480 per tn, free on board. The rate for new crop soy meal was $480 per tn in July and has moved in a range of $440-$500.

Global Updates
Production setback in the US- Demand Eyed Adverse weather conditions in the month of June and early July raised concerns over crop yield in the US. US harvested area in 2013-14 is estimated lower 30.9 mn ha, which is marginally lower from 2010-11 record 31.003 mn ha. However, dry weather in the crucial month of August may lower yield below the earlier projection of 42.6 bushels per acre. August is the critical growth period for soy as the crop sets and fills pods. Weather in August has not been good; there has not been any broad soaking rain and if dryness continues, then yield may probably go below the current projections. Ending stocks of soybean may be revised downward. However, stocks are seen growing from the 201213 marketing year that ended August 31 at 125 million bushels.

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

Crop Sowing to delay in Brazil amid dry South America Weather The two major South American exporters, Brazil and Argentina are set to begin soybean planting for the new season. However, dry weather just before planting may delay the sowing activities. Dryness stretching from the central Brazilian states of Mato Grosso and Goias into most crop areas in Argentina is stressing wheat fields and delaying the start of sowing corn, soybeans and sunflowers. Soybean planting in Argentina usually only starts in October or early November, so there is still time for rain to arrive. Recent price gains may also encourage farmers to expand sowing if conditions improve. But in Brazil, insufficient soil moisture may result in deteriorated new crop prospects. On the back of rallying prices, Argentina and Brazil are both expected to increase soybean plantings in the 2013-14 season at the expense of corn. Reflecting the recent price movements between soybeans and corn, Rabobank estimates soybean plantings in both Argentina and Brazil will likely increase by five per cent to seven per cent year-on-year. The depreciating Brazilian Real (BRL) will also support soybean returns (priced in US dollars) relative to corn in Brazil. China has secured significant volumes of US 2013/14 new crop supplies China remains the king of the global soybean markets with average contribution of 62 percent in the world imports. Total soybean consumption in China in 2012-13 is estimated to be a record 75.8 million tonnes, but the year-on-year growth is just 5 percent which is the slowest in last 3 years owing to an outbreak of bird flu. A fall in Chinese demand for soybean meal used to feed poultry and livestock declined as consumers change their eating habits away from poultry. China’s domestic feed markets showcased exceptional growth in response to rising incomes and increased consumption which spurred country’s soybean imports for nine years in a row. However, as per the EIU, data from the General Administration of Customs show that during the first eight months of the 2012-13 (October/September) marketing year, imports totalled just 34.7million tonnes, representing a year-on-year contraction of nearly 10 percent. Given that imports from the US were growing strongly, by around 15 percent year on year, this suggests that logistical difficulties in Brazil, which resulted in significant delays to the shipment of new crop soybeans, were a central reason behind the contraction
Source: USDA

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

in the total volume of deliveries. However, the data also reflect the impact of the outbreak of bird flu and the associated reduction in domestic demand. However, soybean use in China is expected to expand in the coming months and imports could reach 69 million tonnes in 2013-14 season from an estimated 58.5m tonnes in 2012/13. Uptrend to continue in the international Soy market- Yield concern to offset seasonal supply pressure Commencement of harvesting in the US may increase Soybean supplies in the global markets. However, persistent dry weather may cause further yield losses in the largest exporting nation. Thus, upward trend may continue over the next one month. High temperature in the Brazil, where soybean planting is yet to commence has also raised concerns.
Source: USDA

Nonetheless higher prices may attract farmers in Brazil and Argentina to opt for this lucrative crop and with bigger crops ahead, 2013-14 could see record soybean stocks in the world, which at present is estimated at 74 mn tn, as per the USDA. Thus, price trend in the long term may remain bearish in the international markets, provided weather conditions remain favorable in the days to come. September to witness a range bound movement in the domestic soybean prices Sowing of Soybean is almost complete and acreage is estimated at record levels amid higher returns and good monsoon. Incessant rains in the month of August have caused damaged to the standing soy crop. However, the situation is not worrisome as acreage remains significantly higher and marginal yield losses may not rule out bumper output expectations. Sunshine during the last two weeks has also raised hopes of a better crop. As per the seasonal price pattern soybean prices tend to decline in the month of September with commencement of harvesting and bottom out when arrivals reach its peak in the month of October. Harvesting shall commence in full pace in the coming weeks and thus we expect soybean price to remain under downside pressure and test Rs 3200 per qtl from the current Rs 3425 per qtl level. However, with an expected recovery in the international soybean prices, sharp downside below this level may be restricted.

Technical Levels:
Commodity NCDEX Soybean Contract October S2 3200 S1 3300 CMP 3400 R1 3600 R2 3700

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

Edible Oil
Price Performance Among edible oils, Refine soy oil posted 10.7 percent gains while Crude palm Oil posted 15 percent gains in the month of August. Beisdes festive season demand and excessive rains, an important factor that pushed prices higher was a sharp depreciation in the domestic currency which raised fears over higher import cost of edible oils. India is the net importer of edible oil and imports almost 55-60 percent of its edible consumption annually. Thus, fluctuation in currency largely impacts edible oil prices. In the international markets, gains in the edible oil complex were comparatively lower. On a monthly basis, CBOT soy oil prices increased 4.3 percent. From the monthly average prices chart, we could see that soy oil price at CBOT has witnessed a reversal after falling continuously since the beginning of the year.

India’s vegetableoil import down in August amid Rupee depreciation Imports of vegetable oil declined for second straight month mainly on the back of weakening domestic currency which is making imports expensive. The rupee depreciated around 16 percent in value between June 1 and August 31, hiking prices of dollar-denominated imported vegetable oils. The import of vegetable oils during August 2013 is reported at 7.57 lakh tons compared to 8.89 lakh tons in July 2013. Palm oil imports declined by 7.5 percent in August to 5.34 lakh tonnes compared with the previous month. India imports about 60 percent of its cooking oil demand of 17 -18 million tonnes, with palm oil's share at about 80 percent of the imports. Imported refined palm oil averaged $813 per tonne in August on the country's west coast, while the delivered price for crude palm oil was $808 per tonne. Since the beginning of oil marketing year 2012-13 (November-October), India imported 85 lakh tn vegetable oil till August. Imports of refined Palm oil are up 15 percent in the first eight months of the year.

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

As per the data released by the Solvent Extractors' Association of India, Stock of edible oils as on 1st September, 2013 at various ports estimated at 505,000 tons (CPO 235,000 tons, RBD Palmolein 110,000 tons, Degummed Soybean Oil 95,000 tons, Crude Sunflower Oil 65,000 tons) and about 1,180,000 tons in pipelines. Total stock, both at ports and pipelines is estimated at 1,685,000 tons compared to 1,990,000 tons in previous month. Stock has reduced due to lesser import in August and also lesser production of domestic oil due to lean period. Malaysia’s August- closing stocks end higher, but below expected levels Malaysian palm oil production, stocks and export figures influences palm oil prices to a large extent. India being the largest consumer of Palm oil in the world, domestic Crude palm oil prices takes cues from the international markets. According to the data released for the month of August by the Malaysian Palm oil board, Malaysia's August palm oil stocks rose 0.1 percent in August to 1.67 million tonnes. The rise was below market estimates that stocks had grown by 4 percent to 1.73 million tonnes. August onwards Malaysia’s palm oil stocks start rising on the back of higher output as a result of seasonally higher yield period. Although Malaysia's Crude palm oil production increased by 3.61 per cent to 1.735 million tonnes in August, higher exports capped sharp upside in the stock position. Exports rose 7.4 percent to 1.52 million tonnes, with Malaysia enjoying healthy demand from China as the world's second-largest palm oil buyer stocked up ahead of its Mid-Autumn festival in September. Cargo surveyor data released earlier on Tuesday showed shipments of Malaysian palm oil in the first 10 days of the month rose 11 percent compared to the same period in August. Exports may witness a dip going forward amid lower demand from top importing nation.

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Oilseeds and Edible Oil Update
Monday | September 16, 2013

Edible Oil Outlook Supply side scenario in case of domestic edible oil may ease going forward as harvesting of kharif oilseeds is on the way. Higher availability may offset festive season demand and keep prices under check. Also, correction in the Rupee if sustained at the current levels (63.3) may also exert downside pressure on the domestic edible oil markets. As far as the international palm oil prices are concerned, the Malaysian palm oil is heading towards seasonally higher yield period. Oil palm trees in Malaysia seasonally produce more fresh fruit bunches August onwards, paving the way for a larger supply of the vegetable oil to flow into the global markets thereby hurting prices in the bench mark Kuala Lumpur Commodity exchange. This, along with higher supplies of soybean from the US may exert downside pressure on the domestic edible oil prices in the month of September.

Technical Levels:
Commodity NCDEX Refine Soy Oil MCX CPO Contract October October S2 620 485 S1 640 500 CMP 652 516 R1 670 535 R2 685 552

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