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Informist, Monday, Dec. 30, 2024

 

By Anjali Lavania

 

MUMBAI – The new year is set to be a mixed bag for the oilseeds sector in India, as analysts predict soybean and groundnut prices to remain under pressure due to increased arrivals and excess domestic supply, while mustard prices are expected to witness an uptrend because of tightening supply and lower production estimates in the current rabi season.

 

India's total oilseed production during the last kharif season is projected to rise 6.2% on year to 25.7 million tonnes, according to the first advance estimates for 2024-25 (Jul-Jun) by the government released last month. This growth is driven by bumper groundnut and soybean crops, with major contributions from key producers Gujarat, Madhya Pradesh, and Rajasthan.

 

The government undertook a significant policy shift in September this year, when it introduced a new import duty structure for edible oils to protect domestic producers. The basic customs duty on crude palm oil, soyoil, and sunflower oil was raised to 20% from nil, while that on refined oils was increased to 32.5% from 12.5%. However, market participants like Rahul Chauhan, director of IGrain India Pvt. Ltd., noted that these measures had limited impact due to declining international prices.

 

To reduce dependence on edible oil imports, the government launched the National Mission on Edible Oils in October, allocating INR 101 billion to boost domestic oilseed cultivation. Key initiatives under the programme include distributing free breeder seeds to farmers. This policy aims to enhance self-sufficiency in oilseed production and reduce import costs.

 

While soybean and groundnut markets grapple with oversupply, mustard's upward price trajectory offers a silver lining for the oilseeds sector. Experts believe that the government's policy support and focused initiatives like the National Mission on Edible Oils will likely play a pivotal role in shaping the sector's future, balancing domestic production with import dependency.

 

As India navigates these dynamics, Rajasthan, Gujarat, and Madhya Pradesh remain at the forefront, cementing their roles as key players in the nation's oilseed landscape.

 

SOYBEAN UNDER PRESSURE 

Soybean production globally is projected to reach record levels at 62.74 million tonnes in 2024-25, fuelled by abundant harvests in Brazil and the US, as per data shared by Amit Gupta, research analyst at Kedia Advisory. This supply glut has already resulted in a 20% on-month increase in soyoil imports into India during November, pushing domestic prices below the minimum support price of INR 4,982 per 100 kg, Gupta said. Imports of crude soyoil were up 172% on year at 407,648 tonnes in November, according to data by the Solvent Extractors' Association of India. 

 

One of the main reasons for the fall in soybean prices is sluggish soymeal exports. Soybean prices may remain bearish in the long term due to weak domestic and international demand for soymeal, said Govind Jadhav, a research analyst at Samunnati, an agri-enterprise company. India's soymeal exports fell 52.5% on year to 130,000 tonnes in November from 274,000 tonnes, according to the Soybean Processors Association of India. For Oct-Nov, soymeal exports fell to 241,000 tonnes from 385,000 tonnes a year ago, SOPA said.

 

"Domestic demand for soymeal has declined, with the poultry industry shifting a significant portion of demand to distiller's dried grains with solubles, which is more cost-effective, thereby putting additional pressure on soybean prices," said Indrajit Paul, head of research of Agrocorp International. Soybean prices are likely to remain bearish and trade below the minimum support price, unless there is any downside in production in kharif 2025, which may support prices, he added. 

 

Another reason for the fall in legume prices is increased supply of lower-priced Nepali-origin soyoil in north and central India, which has disrupted market equilibrium, contributing to the price decline, Shailendra Soni, a local trader from Madhya Pradesh, said. Increased production in South America may weaken global demand for Indian soymeal, limiting long-term price gains for soybean, he added. 

 

High imports of soyoil have led to less demand for the domestic oilseed by millers, resulting in low crushing. "Due to high imports, demand for crushing will be less, which may again put pressure on prices," Chauhan said. 

 

GROUNDNUT: WEAKNESS PREVAILS

Groundnut prices are witnessing a downward trend due to both weak domestic and global demand. Market participants believe that price will fall due to other factors as well, like delayed procurement by the government, cheaper imports of some edible oils, huge arrivals, poor quality stocks damaged by rain, and weak export demand. 

 

"Challenges such as competition from cheaper oils like palm and sunflower and erratic weather conditions affecting yields could persist throughout the year. Without significant intervention or demand recovery, these commodities are unlikely to see substantial price growth in 2025," Gupta said. 

Groundnut prices in Gondal, Gujarat, were hovering in the range of INR 5,300-INR 6,700 per 100 kg last week, said Ashok Virvani, a trader from Gujarat. Some good varieties, including Nabar-66, Bold kernel and Java, were priced in the range of INR 6,700-6,850 per 100 kg, he said. The current minimum support price for groundnuts is INR 6,783 per 100 kg.

 

The bearish trend is likely to persist unless prices breach INR 5,490 per 100 kg, which could signal a potential recovery in market sentiment. If prices breach this level and sustain it, then prices may see some positive momentum in the long term, Agrocorp's Paul said. 

 

Groundnut production for the 2024-25 season is projected to reach a record 10.36 million tonnes, a significant increase from 8.67 million tonnes last year, according to the Department of Agriculture and Farmers Welfare.

 

MUSTARD: RAY OF HOPE

While the trend in mustard prices is seen to be bearish in the near and medium term, it is expected to be bullish in the long term.

 

Mustard prices are currently hovering above the minimum support price of INR 5,950 per 100 kg, compared with INR 5,850 per 100 kg a year ago, Gupta said. Samunnati's Jadhav believes that the harvest in the new year will determine the yellow seed prices in the long run. The mustard harvest is likely to begin in Feb-Mar.

 

In 2025, some temporary recovery is possible, but prices may again fall, break support and approach INR 6,000 per kg as the harvest season nears, Soni said.

 

However, in the long term, the mustard market offers optimism. Limited production can create tighter supplies, which may push prices upward. Rajasthan is expected to lead this rally, supported by strong domestic demand and reduced inventory levels.

 

In the long term, mustard seed prices are expected to rise, especially since production this year is likely to be lower. In 2025, mustard prices could trend towards INR 7,300 per 100 kg, especially if they break the resistance level of INR 6,950 per 100 kg, signalling bullish momentum. "The long-term outlook is supported by expectations of lower new crop production, which could tighten supplies and push prices higher," said Paul.

 

In the current rabi season, mustard acreage is seen running below last year's level. As of Dec. 16, mustard acreage was 8.6 million hectares, down 5.4% from a year ago, according to data from the Department of Agriculture and Farmers Welfare. As of Dec. 20, mustard acreage in Rajasthan, the largest mustard-producing state, had fallen to 3.29 million hectares from 3.59 million hectares a year ago.

 

"Farmers are shifting to other crops like wheat and potato instead of mustard in several parts of India," said Paul. He said wheat and potato are less sensitive to temperature variations.

 

CHALLENGES AND OPPORTUNITIES

As 2025 approaches, the edible oil market stands at a crossroads, shaped by global policy shifts, domestic policy measures, and evolving supply-demand dynamics. Experts suggest a year of cautious stability, with the potential for significant shifts mid-year as global and domestic factors interplay. The trade in edible oils is likely to remain flat with limited downside in prices going into 2025, Paul said.

 

Palm oil prices are set to remain firm in 2025, supported by reduced production in Malaysia and Indonesia's aggressive biodiesel mandate. Though Indonesia is expected to increase production by 1.5-2.0 million tonnes, much of it will be diverted to biofuel, with plans to ramp up to a 40% palm oil blend in biodiesel (B40). These shifts could tighten global palm oil supplies and limit availability for export, keeping prices buoyant.

 

In contrast, international soyoil prices are expected to remain subdued in the short to medium term, reflecting ample global stocks and limited demand growth.

 

FUTURE OUTLOOK

Gupta believes that around mid-2025, there could be a significant upswing in oilseed prices as global inventory levels will adjust to the supplies, potentially increasing international prices. Mustard prices may experience further upward momentum if government procurement gains momentum and export incentives are explored.

 

"Soybean and groundnut prices could stabilise with reduced global stocks and stronger domestic demand during the festive seasons. However, price recovery will largely depend on external factors, such as geopolitical shifts, biofuel mandates, and demand-supply dynamics in global edible oil markets," he said.

 

According to Gupta, expected price levels for mustard for 2025 could be in the range of INR 5,800-INR 7,400 per 100 kg. The price range for soybean is expected to be between INR 4,100-4,800 per 100 kg. Likewise, the expected price range for groundnut is in the range of INR 4,750-INR 6,200 per 100 kg. 

 

"India's journey toward self-sufficiency in oilseeds must prioritise fair pricing for farmers to sustain their enthusiasm for cultivation. While record production in kharif 2024 is commendable, the inability of farmers to secure prices above the MSP (minimum support price) highlights a critical gap in policy support. Addressing this issue is essential, not just to reduce the 57-60% reliance on edible oil imports but to ensure that the backbone of our agricultural economy remains strong," Paul said. Much will thus depend on government policies, he added.  End

 

Edited by Tanima Banerjee

 

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