Mumbai: The soybean harvest in India may tumble to a five-year low as the weakest monsoon rainfall since 2009 delays planting, potentially boosting cooking oil shipments to a record in the world’s biggest palm oil importer.

“Production may decline 7.9% to 11 million metric tons in the year beginning 1 October," said Dinesh Shahra, managing director of Ruchi Soya Industries Ltd., India’s largest cooking oil importer. That would be the smallest crop since the 2009-2010 season, according to data from the Agriculture Ministry. Vegetable oil imports, including those for industrial use, may climb to 12% to 12 million tons in the year ending October and increase further in 2014-2015, he said.

Planting of crops from soybeans to rice has been delayed by a 43% deficit in monsoon rainfall, which accounts for more than 70% of India’s annual precipitation. A smaller oilseed harvest will cut domestic supply of cooking oils and increase the country’s dependence on imports, potentially stemming a decline in global palm oil and soybean oil prices.

“Farmers are struggling for quality seeds and unusual dry weather can take away the yield potential," Shahra said. “Looking at the current scenario, India would not have much choice than to import amid domestic crop issues."

The area under soybeans fell to 445,000 hectares as of 4 July from 4.3 million hectares a year earlier, the Agriculture Ministry said on Monday. Rainfall over Madhya Pradesh state, which accounts for about 60% of India’s soybean crop, was as much as 78% less than a 50- year average since 1 June, according to the India Meteorological Department (IMD).

Drought odds

The chances of India facing a drought have increased to 60% from about 25% in April amid forecasts for the occurrence of an El Nino, Skymet Weather Services., a New Delhi-based private forecaster, said last week. An El Nino will reduce monsoon rainfall and crops from cotton to sugar and rice may be hurt, Newedge Llc said in a report dated 5 June.

“We have had a slow start this year and with every day delay in planting the concerns over loss of productivity increase," Rajesh Agrawal, a spokesman at the Soybean Processors Association of India, said by phone from Indore. “The planting window is open till the 15th and can extend till the end of this month. The distribution and timeliness of the rains are very critical."

“Prospects for a smaller crop and rising demand are set to boost cooking oil imports to 11.1 million tons this year and further to 11.7 million tons to 11.8 million tons in 2014-2015," Govindlal G. Patel, managing partner of G.G. Patel & Nikhil Research Co., said on 26 June.

Price spreads

“The total volume would rise but contribution of oils would be a function of price spreads," Shahra said. “Palm oil imports are estimated to decline for the first time in four years to 8 million tons in 2013-2014 from 8.3 million tons a year earlier year because of soybean oil’s narrowing premium over palm," he said.

The discount to soybean oil averaged about $94 a ton this year from an average of $244 in 2013, data compiled by Bloomberg show. India imports more than 50% of its cooking oil demand, shipping palm from Indonesia and Malaysia and soybean oil from the US, Brazil and Argentina.

“Purchases of soybean and sunflower oils are forecast at 3.3 million tons to 3.5 million tons this year," Shahra said. Imports were about 2.1 million tons in 2012-2013, according to the Solvent Extractors’ Association of India.

Palm outlook

Palm oil for September delivery rose 0.5% to 2,414 ringgit ($759) on the Bursa Malaysia Derivatives on Monday. Prices have dropped 9.2% this year on concerns that production will gain in Indonesia and Malaysia, the world’s biggest growers, boosting inventories.

“Amid production improving in Malaysia and Indonesia, the prices have to be competitive relative to soybean to make spreads attractive for higher consumption," Shahra said. “The narrow spreads would destruct demand and result in buildup of stockpiles. We are assuming limited moves in palm."

“Palm may rally less than earlier forecast as demand misses estimates and an El Nino starts later than expected," according to Dorab Mistry, director at Godrej International Ltd. “Futures may climb to 2,800 ringgit by December if the weather event occurs from mid-August," Mistry said on 26 June, cutting his 5 March forecast for a run-up to as much as 3,500 ringgit. Bloomberg

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