Sufficient supplies keep edible oil prices under pressure
Domestic production has risen by about 33% in 2016-17 to 33.6 mt
Adequate supply is keeping edible oil prices under pressure in the domestic as well as international market. Both soy oil and palm oil are trading at six-seven month lows. If weather and rains continue to be favourable, prices will see further correction in the coming months.
Refined soy oil futures on the National Commodities and Derivative Exchange (NCDEX) hit 9-month low and fell more than 14.6 per cent to Rs 623 per 10 kg, so far, this calendar year. Crude palm oil (CPO) prices on the Multi Commodity Exchange (MCX) have fell about 14.5 per cent since January’s highs.
In case of soy oil, market participants and stockists were selling their stocks and positions on forecasts of rising output and stock levels in the domestic market. As per estimates by the Solvent Extractors Association (SEA) of India, country’s edible oil production is set to increase by about 16.6 per cent or 1 million tonnes this crop year to 7 million tonnes due to higher output of oilseeds in both kharif and rabi season, said Ritesh Kumar Sahu, analyst, agri commodities, Angel Commodities.
Domestic oilseed production has gone up by about 33 per cent in 2016-17 to 33.6 million tonnes as thousands of farmers had switched from other crops to oilseed after the government increased the minimum support prices (MSP) of major oilseeds. The right moisture level in the soil too aided output. Production of oilseeds, including groundnut, mustard, linseed, safflower, rapeseed-mustard (RM) seed and soybean has gone up this year.
Globally too production has been on a rise. Global vegetable oil production is expected to be higher in 2016-17 due to recovery in global palm oil production in Indonesia and Malaysia, coupled with higher production of soybean oil in China, the US and Brazil. As per the US department of agriculture’s April report, vegetable oil production will move up by 5.1 per cent to 185.78 million tonnes compared with the last year’s production.

Palm oil production too is expected to be up this year. Due to normal weather conditions and rains, palm oil production in Indonesia is expected to increase to 36.5 million tonnes in 2017-18 compared with 34 million tonnes and 32 million tonnes in the previous two years. Similarly, production in Malaysia is expected to increase to 21 million tonnes in 2017-18 from 17.7 million tonnes in 2015-16 and 19.4 million tonnes in 2016-17.
Higher production has been putting pressure on international prices as well. In Chicago Board of Trade (CBOT), soy oil has been coming down since December 2016. Malaysian palm oil futures hit an 8-month low in the second half of April, said Sahu.
Subdued international price has been one of the factors that have been leading to higher imports of edible oil. The movement of rupee too has been favourable for imports. Rupee has appreciated 5.5 per cent in 2017, making imports cheaper.
This year the government cut the tariff value (base import price) of heavily imported edible oil – CPO, RBD (refined, bleached and deodorised) palmolein and crude soy oil. The tariff value for CPO was cut by about 12 per cent while that of crude soy oil was down by 13.7 per cent. In 2015-16, the imports had gone up to 14.57 million tonnes. Higher import last year too has increased availability in the domestic market.
“We expect that the edible oil prices to trade under pressure till any abnormal weather phenomenon occurs, which affects the soybean sowing in the US or below normal monsoon in India due to the El Nino phenomenon. The refined soy oil prices may move in the range of Rs 590-630 in next two months. Similarly, CPO prices during the next two months may be well be under pressure due to their seasonal increase in production trend in Malaysia and Indonesia,” said Sahu.
sangeethag@mydigitalfc.com
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