Edible Oils Weekly Update - September 14, 2012

Towards the close of the week, the much awaited Fed announcement by the US fed led the commodity markets rally in unison with little regard to the underlying fundamentals.

January 01, 1970 5:30 IST | India Infoline News Service
Bygone Week
International veg oil and oilseed markets exhibited mixed to weak trade in the wake of uninspiring supply demand estimates from the MPOB and USDA. As per the MPOB report, Malaysia's end August palm oil stocks rose to 2.12mn tons from 1.99mn tons in July on better production and encouraging exports. However, report from SGS showing exports (for Sep 1-10) rose as much as 30% ignited the sentiment and aided CPO prices to move higher during mid week. At US, markets turned skeptical ahead of the USDA report as well as rumors of China canceling several cargoes of US beans amid drop in its imports. Soon after the release of the USDA report, markets turned higher but shed gains as harvest progress started and seasonal considerations shadowed the current year’s lower crop. Major revisions in the USDA report included cut in the US soybean yields from 36.1bu/acre to 35.3bu/acre, drop in current year stocks from 145mn bu to 130mn bu, while next year stocks were left unchanged by rationing demand. On the external front, Germany's court ruling in favor of the bailout fund was seen to raise hopes that the debt crisis will not spread further and hurt global economic growth, which provided some respite to the overall sentiment. Indian markets plunged into the negative territory in the wake of improved crop prospects as well as technical weakness which sent oilseed prices revisit their 2 month lows. The inability of INR/USD to sustain above 56 made all recovery attempts to be short lived. Towards the close of the week, the much awaited Fed announcement by the US fed led the commodity markets rally in unison with little regard to the underlying fundamentals. 

Bhav Box
Markets Sep-13 Sep-06 Chg (%) High Low 30D-
BMD CPO 3rd-
month MYR/ton
2,912 2,948 (1.2) 2,969 2,874 3,122 2,826
CME Soy Oil Dec’12
US Cents/Lbs
57.0 57.4 (0.6) 58.2 55.7 58.6 53.3

MCX CPO Sep’12 535.8 551 (2.8) 555 532 585.9 532
NCDEX Soy Oil Oct’12 775.7 804.7 (3.6) 806.0 770.4 821.2 770.4

NCDEX Soybean Nov’12 3,767 3,898 (3.3) 3,910 3,668 4,060 3,668
NCDEX Mustard
seed Oct’12
4,112 4,408 (6.7) 4,406 4,001 4,613 4,001
Source: Bloomberg, India Infoline Research

The much awaited reports viz, MPOB and WASDE are now officially out and indicates a fairly tight scenario especially for the soy complex, which might be more pronounced in the medium term. This is because the markets have to now discount the new crop harvest pressure as US soybeans find their way into the elevators. The fact that the latest USDA report has kept the new crop stocks unchanged indicates that demand is rationed at higher prices. This would be clear once Brazil starts its new crop plantings (are reportedly higher) commence. Nevertheless, the latest revisions by US farm officials to the world crop estimates are not as upbeat for consumers - or discouraging for prices - as they first appear. Definitely, the data seems to show a picture of above-forecast (more than expected) supplies for the main crops – corn, soybeans and wheat. 

The USDA kept its estimate for domestic inventories for 2012-13 at 115mn bu (3.1mn tons), which was higher than the market had expected. But that 115m bushels reflects the minimum level that the USDA is prepared to consider inventories falling to, the level at which it sees so-called "pipeline supplies". The forecast for the actual US harvest was cut, and by more than investors had expected. Similarly, the 650mn bu (16.5m-tonne) of US corn stocks too, which also appears a minimum that the USDA will work to, indicating demand rationing has to be done on papers, if not evident in real time. Interestingly, The question remains that US farmers will harvest nearly the same proportion of their fields for grain as last year, despite the worst drought since 1956. The USDA kept its estimate for harvested corn area at 87.4mn acres, or 90.7% of sowings, despite reports of large amounts being cut for silage which prompted pre-report expectations to be as low as 83.0m acres. ON the whole, the USDA report has many loose ends which are poised to act as ‘speculative triggers’ for the soy complex as we progress into the season.

On the other hand, MPOB report is largely seen to be ‘unfriendly’ as stocks surpass the 2mn tons mark after a span of 11 months. While, the markets were anticipating such high stock levels, the fact that production growth was limited despite widespread El Nino threats, leaves the markets on a pensive mood. Now that, the El Nino threat is almost done away with, peak production supplies of CPO could be augmented which adds further oil to the existing stockpiles despite steady/good export performance. The report showed a 12.3% leap (within market expectations) in CPO stocks ending Aug’12 at 2.12mn tons vs. 2mn tons estimated in July’12. This almost compares with 2.13mn tons stocks witnessed in Oct’11. The major factor that could be attributed for such an increase is the high carry-in from last month as well as below normal drop in production. Export performance was vibrant, clocking a 10% mom growth to 1.43mn tons vs. 1.3mn tons exported in July’12. However on yoy basis, exports were down by 15.3%. While, the fundamentals do not prompt for a price rally at this stage, the fact that CPO is at a wider discount ($300/ton) to soy oil prices is turning the mood in favor of the ‘bull operators’. Domestic sentiment remains uneasy as crop prospects look healthy and participants await the outcome of the widely watched GLOBOIL conference scheduled for next week. 

BMD CPO 3rd month
BMD CPO futures registered narrow range trade last week while holding the trendline support of MYR2,820. Prices have to sustain above MYR2,925 for any meaningful recovery to unfold in the short run. From the medium term view point, as long as prices close above MYR3,050, weak tone remain intact. 

MCX CPO Sep’12
Notwithstanding the test of Rs548 resistance level, MCX CPO prices slipped lower and broke the support level of Rs538 after a span of 2 months. Prices are likely to consolidate at lower levels for the short run as a corrective move for sharp losses. Support rests at Rs525-532 range, break below which would invite more bearishness.

CME Soy oil Dec’12
CME soy oil fell slightly below the psychological support level of 56cents before closing smartly higher. For the near term, this week’s bounce back could sow seeds for a minor recovery, but as long as 57.85cents is not breached, mixed trend could prevail. Failure to sustain above 56cents could yield prices towards the key support of 54.5cents. 

NCDEX Soy Oil Oct’12
In line with our expectations, soy oil prices extended the downfall and pierced below thr intermediate support of Rs780 and made a low of Rs770 for the week. Historical observations suggest that prices are near to a turnaround level which can take the prices towards the resistance of Rs790. A successful breach of the same would lead the prices above Rs800. 

NCDEX Soybeans Nov’12
Soybean prices nose dived, breaking the triangle pattern leading to a retest of 2 month lows below Rs3,700. The potential target for the above-mentioned pattern extends till Rs3,630 while prices made a low of Rs3,668. This leaves some more room for short term weakness. As long as prices do not close above Rs3,800, overall trend remains mixed with weak bias. 

NCDEX Mustard seed Oct’12
RM seed prices plunged into the negative territory making a new 2 month low of Rs4,000, before recovering smartly. This could lead to a mixed price action with positive bias for short run towards Rs4,250 (retest of break down level). As this week’s bounce back has occurred from a psychological support level, as long as it is not broken, prices could ply between Rs4,000-4,300. 

Trend Tracker
BMD CPO 3rd-
month MYR/ton
2,912 2,820 – 3,080 Both domestic and global
markets seem to be taking
support at multi month lows
and hence a short term
recovery tone could unfold.
The medium term direction
remains positive, but the
magnitude of the rally needs
to be ascertained as we move
CME Soy Oil US
Dec’12 Cents/Lbs
57.0 53.5 – 59

MCX CPO Sep’12 535.8 525 – 550
NCDEX Soy Oil Oct’12 775.7 770 – 800

NCDEX Soybean Nov’12 3,767 3,650 - 3,850
NCDEX Mustard
seed Oct’12
4,112 4,000 - 4,300
Source: Bloomberg, India Infoline Research, * Prices as on Sep 13, 2012, rounded off to the nearest decimal

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