The latest report from the USDA giving the World agricultural supply demand estimates paints a moderate picture for the oilseed and edible oils market. Recently, global prices have been turning firmer on the back of potential soybean crop loss accruing to Argentina and Brazil.
This report vouches for the same and has reduced the SA crop size by nearly 4mn tons from the January estimate.
As such a reduction was anticipated inline with the downward crop revisions by various local and international crop survey agencies; and hence its standalone price impact could be limited.
Yet another striking point is that since the past few months, global soybean demand has been significantly curtailed both partly on account of sluggish consumption prospects in the major importing countries as well demand rationing at seemingly higher prices as global crop declines.
The report clearly showcases the inability of sustainable demand to effectively manage scarce supplies and thereby leaving minimal scope for a price rally at this point of time.
US soybean and product balance sheet were literally left unchanged with soybean stocks kept at 275mn bushels. This stands in a light contrast from the pre report expectations calling for an increase in the stocks to near 300mn bushels.
Hence, this might be seen as a bearish factor for the short term (yet the marketing year is just half way through). Major revisions pertain to South American crop with Brazilian soy crop reduced by 2mn tons to 72mn tons vs.
January estimate of 74mn tons. Similarly, Argentine soybean crop was reduced by 2.5mn tons from 50.5mn tons to 48mn tons. With the La Nina easing for now the chances for any further crop cuts remains bleak.
On the soybean demand front, EU imports were further reduced from 12mn tons to 11.5mn tons and Chinese imports were also drastically cut by 1mn tons from 56.5mn tons to 55.5mn tons. As far as corn is concerned, balance sheet stands bullish with stocks slashed from 846mn bushels to 801mn bushels.
Argentina’s corn production was lowered by over 20% to 22mn tons, which could be a short-term upside trigger for the markets. On the overall vegetable oils space, ending stocks were pegged to surpass 12mn tons, which is a discouraging development from the long term perspective.
Courtesy: IIFL
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