Soybean Oil Crosses 1400 in 2021: Currently Lower Than December 2020 Level

SOYBEAN OIL CROSSES 1400 IN 2021: The traded offers of soy oil are down nearly 2 percent when compared with the average prices prevailing during December 2020. Soy oil prices have increased to an unprecedented high in the country. There was a significant improvement in purchasing interest amongst global players for vegetable oils like sunflower oil, canola oil, palm oil, soy oil, etc, for maintaining sufficient stock levels.

The need to stock was for countering the supply shocks/disruptions, resulting because of the rise in the pandemic threat. Shortage of soybean added to the upward trend and like soybean, record highs were attained in soya oil as well. The edible oil peaked in May 2021 before reversing the trend.  Prices climbed as high as 1470-1480 during this month.

In order to control the price rise, the government reacted timely by announcing the import duty cuts. In all, there has been a three-time reduction in the import duties of edible oils between February 2, 2021, and October 14, 2021. India’s effective import duties for soybean oil have decreased by 33 percent during this period. Soya oil prices are down 0.5 percent year on year.

The Indian currency was more or less stable therefore could not have any noticeable impact. But a sharp upside rally of crude oil supported the soy oil market. Crude oil has a positive correlation with the major edible oil prices such as palm oil and soya oil since they are all used in the manufacture of biodiesel.

OUTLOOK FOR 2022: This year India will be having a higher crop of soybean. This implies that soya oil supplies shall improve, once soybean availability increases in the market. As long as there is limited selling by the big farmers, prices shall not experience any pressure. This is because whatever supply is arriving presently is usually consumed by the end users, after crushing. (Soy oil is obtained from crushing of soybean). The consumption of edible oil usually improves during the winter season. The average offers available these days are lucrative for purchase by the retailers as well as stockists.

Speaking about palm oil, the plantation was affected in 2021 due to the pandemic issue. (Border restrictions reduced migration labor supply in Malaysia and Indonesia). As a result, global output of palm oil will be lower than last year. Global exports on the other hand was robust in 2021, therefore the world’s carry over inventory estimate is reduced year on year. These factors will be bullish for soya oil since both have a strong positive correlation with each other.

Summing up, as long as soybean supply is not increasing, or the global palm oil or soy complex markets are not indicating any reversal signs, soya oil shall trade with an upward  bias. In the month of December, soybean oil at the major market of Indore may average above the 1150 mark and during the early part of 2022, prices will tend to move towards 1250-1275 levels before reversing from the upward trend.