soyoil update dec2016

Agri-Commodity Update -Refine Soyoil

Monday, December 19, 2016

www.angelcommodities.com

Refine Soy oil continue to gain in the calendar year, may

retreat in coming months on better oilseed production

prospects

Disclaimer: The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy, completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose without prior permission from “Angel Commodities Broking (P) Ltd”. Your feedback is appreciated on [email protected]

Prepared by Ritesh Kumar Sahu Analyst - Agri Commodities [email protected] (022) 2921 2000 Extn. 6165

Anuj Gupta Head–Technical Research (Commodity & Currency) [email protected] (011) 4916 5954

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Price Performance

Soy oil prices in domestic and international market surged

during the last quarter of the current calendar year

regardless of the record production estimates of oilseeds

in the world. The higher price of soybean and palm oil

during the current oil year compared to last year is

supporting the soy oil prices.

The US department of agriculture (USDA), has forecast the

record Oilseed production at 554.7 million tonnes (mt), up

6.2% compared to last year production. Despite, record

oilseed production forecast the prices of edible oil prices in

2016/17 were at higher levels mainly due to shortage in

palm oil supply as palm trees in Indonesia and Malaysia are

still recovering from the El Nino weather phenomenon.

The soy oil prices have increase more than 11% since

October on CBOT and National Commodities and

Derivative Exchange (NCDEX). This increase is mainly due

to forecast of higher import and consumption demand

from China, acute shortage of highest consuming, cheaper

palm and increase in bio-diesel mandate in the US,

Indonesia and Malaysia.

Moreover, the weather uncertainty over soybean crop in

South American countries– Brazil and Argentina- also

factoring in the prices of soybean and soyoil. This year, La

Niña, is hanging on the Eastern Pacific will suppressed

rainfall in South America during the sowing and growing

season of soybean, particularly in Argentina and Southern

Brazil. The market participants are certainly expecting

some weather disturbances in the form of moisture stress

during the current soybean season.

27

29

31

33

35

37

39

600

620

640

660

680

700

720

740

Jan-1

6

Feb

-16

Mar-1

6

Ap

r-16

May-1

6

Jun

-16

Jul-1

6

Au

g-16

Sep

-16

Oct-1

6

No

v-16

De

c-16

Ncdex (Rs/10Kg)

Cbot (Cents/ lbs)

Source: Reuters

Monthly Average Soy oil Price- NCDEX & CBOT

Import dependence of Soyoil may come down as

domestic production to increases in 2016/17

India largely imports about 65-70% of its annual edible oil

requirement and thus the domestic prices mainly follow

the global trends of soybean oil on CBOT and palm oil

prices in Malaysia.

As per 1st advance estimate for 2016/17, Government of

India forecast the oilseed production to increase about

37.5% to 34.8 mt compared to last year production. This

sharp recovery in total oilseed production will definitely

improve the domestic availability of the edible oils to

about 5 mt — an increase of 22% over last year. Similarly,

the production of soybean oil in the country is expected to

increase to 15 lakh tonnes (lt) in 2016/17, up by 51.8%

compared to last year production.

In spite of higher domestic edible oil and soyoil

production, overall imports of edible oil in 2016/17 are

forecasted to increase to 16.1 mt in USDA December 2016

report. In 2015/16, India imported about 15 mt of edible

oil. The increase in edible oil in the current oil year (Nov-

3.2

-1.5

2.6

11.1 14.3

-8.9

7.1

11.2

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Q1 Q2 Q3 Q4

Soyoil- Quarterly price Change (%)

NCDEX Cbot

18

15

12 10

14 15

5

10

15

20

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Nov Dec

Hu

nd

red

s

Soyoil Production (lakh tonnes) - India

Source: USDA




Government increase tariff values

As per the release by the Central Board of Excise and

Customs on 15-Dec2016, government has raised the base

import price (tariff values) of crude soyoil by $42 per

tonnes to $912 per tonnes.

The tariff value of Crude soy oil crossed $900 per tonnes

for the first time since August 2014.

The tariff value of crude soyoil was increased for the sixth

time in three month by the government. It is increase by

about 21.3% since mid july and 25% in 2016.

Base import prices of edible oils are revised every

fortnight based on their movement in the international

market, as well as changes in the foreign exchange rate.

The prices were last revised on Nov 15. The government

calculates import duty on the base import price,

irrespective of the actual import price.

India Balance Sheet

590

630

670

710

750

700

750

800

850

900

950

18

-Jan

-16

2

9-J

an-1

6

15

-Feb

-16

2

9-F

eb-1

6

16

-Mar

-16

3

1-M

ar-1

6

13

-Ap

r-1

6

13

-May

-16

3

1-M

ay-1

6

15

-Ju

n-1

6

30

-Ju

n-1

6

15

-Ju

l-1

6

29

-Ju

l-1

6

12

-Au

g-1

6

31

-Au

g-1

6

15

-Sep

-16

3

0-S

ep-1

6

14

-Oct

-16

3

1-O

ct-1

6

15

-No

v-1

6

30

-No

v-1

6

15

-Dec

-16

Soyoil Futures Vs Tariff Values - 2016

Tarrif value ($/tonnes)

Futures Price (Rs/10kg)

1000 2015/16

Nov Dec M/M Y/Y

Beginning Stock 1.99 4.53 4.53 0.00 127.64

Production 9.97 13.53 15.13 11.83 51.76

Imports 43.60 40.00 38.00 -5.00 -12.84

Total Supplies 55.56 58.06 57.66 -0.69 3.78

Consumption 51.00 54.00 54.00 0.00 5.88

Exports

Total Demand 51.00 54.00 54.00 0.00 5.88

Ending Stocks 4.53 3.68 3.66 -0.54 -19.21

Source: USDA

India Soyoil Balance Sheet (Lakh tonnes)

2016/17 %Chg

Oct) is due to increase in consumption demand of the

country which, jumped to 22.7 mt in 2016/17 compared

to 21 mt last year.

In case of soyoil, the consumption during 2016/17 is

forecasted at 54 lt, higher by 5.9% compared to last year

consumption.

However, USDA forecasts imports of soybean oil to be

down by about 12.8% to 38 lt in 2016/17 compared to last

year imports due to higher crushing of soybean this

season.

As per Solvent Extractor Association of India (SEA) data,

India import of soybean oil declined by 37% to 1,64,286

tonnes in November from 2,56,836 tonnes in the year-ago

period. This is second reduction in as many months.

During the October 2016, the reduction was about 31.4%

m/m and 40.5% y/y.

India’s 2015/16 oil year, crude soyoil import were 4.23 mt

vs 2.99 mt in 2014/15– an increase of 41% y/y for the

current oil year (Nov-Oct).

29.6 33.1

40.6

51.0 54.0 54.0

20

30

40

50

60

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Nov Dec

India - Soyoil Comsumption (lakh tonnes)

Source: USDA

10.9

18.3

28.0

43.6 40.0 38.0

0

10

20

30

40

50

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Nov Dec

Hu

nd

red

s

Soyoil Imports (Lakh Tonnes) - India

Source: USDA




Global Scenario

As per USDA report, 2016/17 global soy oil supply and demand

estimates include higher production, consumption and

decreasing ending stocks compared to last year.

Global soy oil production is projected higher by 4.15% to 53.9

mt on increasing world soybean supplies and increasing

soybean crush for the US, China and India. In 2015/16, the

production was 51.8 mt.

The top soy oil producing countries in the world are China, the

US, Argentina and Brazil. China is expected to produce 6.4%

higher at 15.5 mt in 2016/17 similarly the US also will produce

10.1 mt, up 1.56% compared to last year production.

The top soy oil consuming countries are China, the US, Brazil,

India and Argentina. For 2016/17, USDA has expected the

world consumption to increase by 4.35% compared to last

year consumption to 54 mt. The consumption forecast of all

the top consuming countries is higher in 2016/17. The

consumption in China and India is higher due to higher per

capita consumption while in the US and Brazil, the use of

higher percentage of biofuel for 2016/17 increased the

consumption.

In late November, the Environmental Protection Agency (EPA)

of United States published its final ruling on the 2017

Renewable Fuel Standard (RFS) blending obligations when it

sets a target of compulsory blending of biomass-based diesel

at 2 billion gallons in 2017, up from 1.9 billion in 2016.

43.1

45.1

49.1

51.8

53.7 53.9

40 42 44 46 48 50 52 54 56

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Nov Dec

Tho

usa

nd

s

World- Soyoil Production (Million tonnes)

Source: USDA

On this basis, USDA raised its forecast of 2016/17

consumption of soybean oil for biodiesel this month by

250 million pounds (0.11 mt) to 6.2 billion pounds (2.8

mt), up from the 5.67 billion pounds (25.7 mt) in 2015/16.

World Balance Sheet

Price Outlook

For its consumption need, India imports about 70% of

soyoil and thus prices in the domestic market depend

heavily on the prevailing international prices. As shown

below, the soy oil prices in the domestic market are at

four year high due to firm international prices. The

domestic production of soybean oil is expected to be

higher since 2013/14 season but the import dependence

is still high.

In the current season, soyoil prices have increased due to

the fall in the palm oil supplies amid El Nino phenomenon

in 2015 and higher domestic usages of palm oil in

1000 2015/16

Nov Dec M/M Y/Y

Beginning Stock 3.76 3.81 3.81 0.00 1.28

Production 51.79 53.65 53.95 0.55 4.15

Imports 11.78 11.39 11.27 -1.11 -4.33

Total Supplies 67.33 68.85 69.02 0.24 2.51

Consumption 51.73 53.61 53.98 0.70 4.35

Exports 11.79 11.73 11.61 -1.55 -1.55

Total Demand 63.52 65.34 65.59 0.38 3.26

Ending Stocks 3.81 3.56 3.43 -3.60 -9.95

Source: USDA

World Soyoil Balance Sheet (million tonnes)

2016/17 %Chg

550

600

650

700

750

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Sep

Oct

No

v

Dec

Price Comparision - Ref Soy oil

Y2013 Y2014 Y2015 Y2016




Indonesia. The increase in soybean prices due to higher

demand from China, higher biodiesel mandate in the US

and probable impact of La Nina on South American

soybean may keep the soyoil prices higher in the

International market.

However, the prices of soyoil may cool down in later part

of next year as there are good projections for palm oil

output in the second quarter of 2017 and there might be a

weaker demand from China and India due to higher

production of oilseeds.

The soy oil prices may only get firmer if weather problems

in Argentina and Brazil occur due to La Nina. With positive

forecast of fresh rains in the region the market

participants and traders belief that the soybean

production in South America may not affected due to

weather disturbance.

Thus, soy oil prices in the country may retreat from higher

levels as the oilseed production this year is expected to be

at record levels and world supply demand of soybean is at

comfortable level.

Technical outlook

As seen above monthly price chart of NCDEX Refsoyoil, it

is clearly seen that prices are trading in the bullish trend

from last couple of months. Last month we have noticed a

positive breakout on the charts followed by “Bullish

Candlestick” formation. As per the formation of price

chart, it is following “Higher Top and Higher Bottom”

formation which is basically a sign of bullish trend.

As per the moving average, prices are trading above its 5,

20, 50 and 100 EMA (Monthly basis), which is supportive for

the prices.

Technical indicator 14 month RSI is rising and MACD is also

showing positive divergence and both are suggesting

northward trend.

We expect Ref Soy oil price to find support at 705 – 700

levels. Trading consistently below 700 levels would lead

towards the strong support at 670 and then finally towards

the major support at 640 levels.

Resistance is now observed in the range of 755 – 760 levels.

Trading consistently above 760 would lead towards the

strong resistance at 790 and then finally towards the major

resistance at 820 levels.

Looking towards positive chart structure and indicators

supporting the bullish trend, we are recommending buy

NCDEX Refsoyoil for the target of 760.

Buy NCDEX Ref soyoil between 700 – 705, SL – 670, Target

– 755 / 760

soyoil update dec2016

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