Agri Commodities Finish Lower on Friday – Recovery Expected This Week

Major agricultural commodity futures markets were firm during early part of the day but reports of better sowing of summer crops and subdued buying interest in major trade centers resulted longs to reduce their buy positions in futures later. Fresh selling was seen as spot markets were sluggish. The spot offers had turned quite expensive therefore spot buying interest had turned subdued in last few days. As such, lack of fresh cues from the major trade centers put pressure on the price levels.

Lockdown restriction has created fear of a likely drop from existing level of demand. This also put pressure on commodity prices on the weekend session. Hence, we expect a recovery within next few days since the broader fundamentals are positive. Reports of increase in summer crops planting area added to the bearish trend in oilseeds and Chana. According to fresh reports from Agriculture Ministry, area under summer crops has shown an increasing trend in India. Summer sowing increased by 21.5% more than last year. Sowing of pulses has increased to 12.75 lakh ha from 6.45 lakh ha, shows nearly 100% year on year. Likewise sowing of Oilseeds and Rice has shown an increase of around 16% for the same time period.  

Chana: 

Futures ended lower on Friday. The domestic markets have been moving upwards during the previous week but the momentum has eased in last couple of days. The recent gains has started discouraging fresh buying activity which pushed futures downwards. Reports of increase in summer pulses sowing area also contributed to the bearish trend. The farmers are bringing in lesser quantum for sale in the mandis currently, in anticipation of getting better returns for their produce. This explains lower arrivals despite the new crop supply period. 

The government procurement shall continue and will be seen another positive price driver.  Unless the arrivals are seen in decent number, chances of any sharp bearish movement shall be lower for this week. Talks of a lower crop size against previous estimates and a lower carry over inventory for this year shall continue supporting the derivatives. On the whole chances for futures market to attempt for a recover remain bright in coming days. May Chana at NCDEX was down 1.4 percent over previous closing.  

Refined Soybean Oil & Soybean:

Friday’s session saw negative closing in futures markets since longs reduced exposure in their positions as domestic offers had turned quite expensive. But fundamentally, lower edible oil stocks globally amid concerns over falling output due to untimely rains in Brazil are currently seen favorable for an upward price action in near future. There is constant demand for soybean and soymeal while strength in palm oil also persists. The primary direction therefore remains bullish.    

Global cues were positive but domestic markets ignored this since the domestic trade offers had turned quite expensive while futures were in extended overbought situation. This forced soybean to longs to reduce exposure in their positions. Farmers are bringing lesser quantities for sale anticipating further gains in near future. As such, the mandi arrivals are limited these days. The Poultry sector has recovered quite smoothly in last few months, after experiencing the adverse impact of Covid pandemic as well as bird flu over the past one year. (Soymeal has largest consumption share in the poultry feed ingredients). 

The recent USDA release did not offer any surprise for the market and the holistic picture continues indicating that the broader supply and demand fundamental situation has not changed in the soy complex basket. The world supply and demand factors continue pointing at global average soy complex prices to remain firm this year. Global ending stocks were estimated at 86.9 mmt, in the latest USDA report. Global oilseed stocks are estimated higher by almost 4 million tons, mainly due to hike in Brazil and China carryout estimate. Reports convey that consistent growth in world soybean usage, are most likely to keep ending 2020/21 supplies at the tightest level in twelve years.

For soybeans, the U.S. ending stocks were estimated at 120 million bushels, same as the March estimate. The world ending stocks were estimated at 86.9 mmt, as against the market guess of 83.52 mmt. Global oilseed stocks are estimated higher by almost 4 million tons, mainly due to hike in Brazil and China carryout estimate. The view for the week remains bullish for soybean. NCDEX May Soybean fell by 4.8% over previous day while NCDEX May Soya oil was down 2.74%.  

Mustard/ RM seed:

The commodity traded with positive bias initially but ended lower as soybean and edible oils gave back morning gains. We expect RM seed to show resume the upward path since robust demand will result in absorbing the new season supplies. So despite the peak arrival season, buying interest remains healthy amongst stockists and retailers. Lockdown restriction has increased the urgency for retailers and stockists to maintain sufficient inventory in order to meet the requirements regularly.

Corporate buying is seen frequently in mustard oil these days. There is continuous parity in crushing of mustard/rape seed and because of emerging business opportunity in this oilseed few of the soybean processing plants are also involved in the crushing operation in this oilseed. The charts convey that May RM seed may not sustain below 6800 this week. NCDEX May RM seed was down 2.97 % against previous closing on Friday.