Long Term Bullish Outlook: Oil and Oilseeds

Long Term Bullish Outlook: Oil and Oilseeds

Technical Recommendations Commodity S2 S1 R1 R2 Recommendation CBOT Soybean (Cents/bushel) 880 950 1130 1300 Buy at 1000-1020 TP 1250 SL 930 NCDEX Soybean (`/Quintal) 1850 1980 2320 2450 Buy at 1980-2020 TP 2300, 2400 SL 1840 Commodity S2 S1 R1 R2 Recommendation CBOT Soy Oil (Cents/lb) 32 37 44.40 48 Buy at 40.50-41.20 TP 46/47 SL 37 NCDEX Soy Oil (`/10 kg) 450 475 515 530 Buy at 474-478 TP 510, 520 SL 455 MCX Soy Oil (`/10 kg) 450 475 515 530 Buy at 474-478 TP 510, 520 SL 455 Commodity S2 S1 R1 R2 Recommendation BMD CPO (MYR/T) 2120 2460 2860 3230 Buy at 2500-2550 TP 2800-3050 SL 2300 MCX CPO (`/10 kg) 360 400 430 460 Buy at 395-410 TP 450 SL 370 2

CONTENTS 1. World agriculture 6 2. World oilseeds trend 6 3. Soybean 9 a. A History 9 b. Global scenario 10 c. Country wise profile 13 i. United states 13 ii. Brazil 16 iii. Argentina 18 iv. China 20 v. India 22 1. Oilseeds 22 2. Soybean 23 a. Supply demand 23 b. State wise profile 26 c. Present situation 28 d. Price action 29 e. Price outlook 29 f. Technical analysis 29 4. CPO a. Introduction 33 b. History 33 c. Importance 34 d. Early trade in palm 34 e. Supply demand scenario 35 f. Indian scenario 36 g. Price analysis 36 h. Technical analysis 37 3

List of Tables Sl. No. Particulars Page No. 1 Global oilseeds production 6 2 Meal and oil recovery from major oilseeds 7 3 World oilseeds balance sheet 8 4 World oil meal balance sheet 8 5 World oil balance sheet 9 6 Global Soybean Crop Calendar 10 7 World Soybean production, crushing, oil and meal recovery 10 8 World soy supply-demand scenario 12 9 Country-wise trade profile 13 10 US soybean balance sheet 14 11 Share of soybean in total oilseeds US 14 12 US Soybean production, crushing, oil and meal recovery 14 13 US soy oil balance sheet 15 14 US soy meal balance sheet 15 15 Brazil Soybean production, crushing, oil and meal recovery 16 16 Brazil soybean balance sheet 17 17 Brazil soy oil balance sheet 17 18 Brazil soy meal balance sheet 17 19 Argentina soybean balance sheet 19 20 Argentina Soybean production, crushing, oil and meal recovery 19 21 Argentina soy oil balance sheet 19 22 Argentina soy meal balance sheet 19 23 China soybean balance sheet 20 24 China Soybean production, crushing, oil and meal recovery 21 25 China soy oil balance sheet 21 26 China soy meal balance sheet 21 27 Kharif oilseeds production in India 22 28 Soybean balance sheet India 24 29 Soy oil balance sheet India 25 30 Soy meal balance sheet India 25 31 Division wise area, production & yield of soybean Madhya Pradesh 26 32 Division wise area, production & yield of soybean Maharashtra 28 33 Division wise area, production & yield of soybean Rajasthan 28 4

List of Figures Sl. No. Particulars Page No. 1 World oilseeds production 7 2 World soybean Area, Production & Yield 11 3 World soybean Production, Consumption & Stock/Use Ratio 11 4 World soy map 12 5 US soy map 13 6 USA soybean Area, Production & Yield 13 7 Brazil soy map 16 8 Brazil soybean Area, Production & Yield 16 9 Argentina soy map 18 10 Argentina soybean Area, Production & Yield 18 11 China soybean Area, Production & Yield 20 12 Share of oilseeds production in India 22 13 India soy map 23 14 Soybean yield 23 15 India soybean Area, Production & Yield 24 16 Monthly soy oil import 25 17 Monthly soy meal exports 26 18 Price movement: Soybean and soy meal 29 19 Technical analysis CBOT soybean 30 20 Technical analysis CBOT soy oil 31 21 World crude palm oil production 35 22 CPO production: Indonesia Vs. Malaysia 35 23 CPO import India 36 24 Technical analysis BMD CPO 37 5

World agriculture Agriculture was developed at least 10,000 years ago and it has undergone significant developments since the time of the earliest cultivation. Nearly 50% of the world's labor force is employed in agriculture. Agriculture has been part and partial of growth of any economy albeit having little share compared to other sectors manufacturing and services. Many countries are in the top list of production, consumption, export and import of one or other commodities. Much of the foreign exchange earned by a country may be derived from a single commodity; for example, Sri Lanka depends on tea, Denmark specializes in dairy products, Australia in wool, and New Zealand and Argentina in meat products. In the U.S., wheat, corn, and soybeans have become major foreign exchange commodities in recent decades. Trade in agricultural commodities has become an international concern as these produces are not only used for food but also for national income and raw material for industries. Major commodity sectors grown in the world are cereals (wheat, rice, corn, oats, barley and millets), oilseeds (soybean, groundnut, sunflower, palm, rapeseed etc), spices (pepper, jeera, turmeric, cardamom, chilli etc), pulses (pigeon pea, black gram, red gram, green peas, yellow peas etc), sugar, cotton, mesta, jute etc. Among these groups cereals contribution is very high to world agriculture production followed by oilseeds. World oilseeds trend Oilseed crops are grown primarily for the oil and meal contained in the seeds. The oil content of small grains (eg, wheat) is only 1-2% whereas that of oilseeds ranges from about 20% for soybeans to over 40% for sunflowers and rapeseed. The major sources of edible oils are soybeans, sunflowers, rapeseed, cotton and peanuts. Let us have a brief idea about total oilseeds supply demand dynamics. Table 1: Global oilseeds production 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 CAGR Soybean 215.78 220.67 237.13 221.01 211.96 259.9 253.69 2.53 Rapeseed 46.09 48.51 45.09 48.51 57.84 59.93 56.74 4.74 Cottonseed 45.48 43.47 46.01 45.89 41.11 39.74 43.78-1.44 Peanut 33.61 33.24 31.03 32.59 34.47 32.92 34.67 0.64 Sunflower seed 25.28 29.93 29.74 27.20 33.22 30.48 31.61 2.96 Palm Kernel 9.54 9.97 10.18 11.10 11.88 12.36 13.29 5.81 Copra 5.60 5.60 5.27 5.72 5.88 5.88 5.96 1.41 Total 381.38 391.39 404.45 392.02 396.36 441.21 439.74 16.65 World oilseeds production has been growing constantly year-after-year on higher acreage and improving yield level. However, there were certain hiccups in between due to bad weather condition (like 2009). Global oilseeds production grew at a Compounded Annual Growth Rate of 16.65% since 2004-05. For 2010-11 season, the production is expected to be 439.74 million tons, down 0.3%. Marginal fall may be due to decline expected for rapeseed. Soybean is the world s largest producing oilseeds, having a contribution of around 58% (Figure 1). Other major producing oilseeds are rapeseed (13%), cotton seed (10%), peanut (8%) and sunflower (7%). Soybean is being on a larger extent because of its various kinds of uses for food, feed and fuel. 6

Figure 1: World oilseeds production Amongst major oilseeds grown, higher percent of oil is extracted from copra (62%) followed by palm kernel (45%) and rapeseed (39%). Lowest oil recovering seeds are cotton seed and soybean at 15% and 19% respectively. Contrary to this, soy seed yield maximum meal compared to others. On crushing, soybean gives around 78-80% of meal while other ranges between 30-60%. Least meal producing seed is copra, which yields 33% of de-oiled cake. Table 2: Meal and oil recovery from major oilseeds Meal percentage Oil percentage Copra 33% 62% Cotton Seed 45% 15% Palm Kernel 53% 45% Peanut 39% 33% Rapeseed 59% 39% Soybean 79% 19% Sunflower 44% 41% Source: KCTL Research 7

Table 3: World oilseeds balance sheet Beginning Stocks Production Imports Total Supply Exports Consumption Ending Stocks 2004-05 45.06 381.37 72.66 499.08 74.37 366.84 57.87 2005-06 57.87 391.38 75.42 524.66 75.78 384.53 64.35 2006-07 64.35 404.45 80.84 549.64 83.28 392.91 73.45 2007-08 73.45 392.01 89.96 555.42 92.67 401.10 61.66 2008-09 61.66 396.37 93.67 551.71 94.48 400.88 56.34 2009-10 57.84 441.20 103.12 635.08 107.17 452.38 75.53 2010-11 74.28 439.74 102.61 616.64 104.92 437.89 73.83 CAGR 5.34% 2.34% 6.67% 3.71% 6.84% 3.18% 2.85% Balance sheet of world oilseeds has been showing an enormous growth year-on-year. Global production is growing at the rate of 2.34% per annum (CAGR) while consumption is growing at 3.18% per annum. Export and import has also increased dramatically growing at a CAGR of 6.67% and 6.84% per annum. For 2010-11, world oilseeds supply is estimated at 616.64 million tons including beginning stocks of 74.28 million tons, production of 439.74 million tons and 102.61 million tons of imports. On the other hand, consumption is estimated at 437.89 million tons. For the current year, global supply and demand of oilseeds is projected lower compared to last year. Table 4: World oil meal balance sheet Beginning Stocks Production Imports Total Supply Exports Consumption Ending Stocks 2004-05 7.31 206.61 59.34 273.25 61.72 204.39 7.14 2005-06 7.14 217.19 65.09 289.42 66.44 215.26 7.72 2006-07 7.72 224.07 66.60 298.39 68.91 221.71 7.76 2007-08 7.76 231.28 68.89 307.93 71.83 228.32 7.79 2008-09 7.79 228.59 66.78 303.15 69.27 227.95 5.93 2009-10 5.93 242.31 68.73 316.98 72.59 238.21 6.17 2010-11 6.17 253.27 71.33 330.77 74.83 249.48 6.46 CAGR -3.06% 3.80% 2.40% 2.79% 2.75% 3.00% -3.57% Oil meals are the greatest feed ingredients for livestock across the world. It is being used as direct feeding or as ingredient if livestock ration. In the world oil meal balance sheet, beginning and ending stocks are showing a declining trend over the years. This may be due to higher consumption from various sectors thus leaving less for carry forward for next year. USDA has projected world oil meal production for 2010-11 at 253.27 million tons, up 4.52% Y/Y. With a total carry-forward stock of 6.17 million tons and import of 71.33 million tons, world total oil meal supply is projected at 330.77 million tons, up 4.35% Y/Y. Global consumption of forecast at 249.48%, up 4.73% Y/Y. 8

Table 5: World oil balance sheet Beginning Stocks Production Imports Total Supply Exports Consumption Ending Stocks 2004-05 9.36 111.64 40.86 161.86 42.82 108.17 10.87 2005-06 10.87 118.85 44.59 174.31 47.87 114.95 11.49 2006-07 11.49 121.55 47.04 180.08 49.08 119.30 11.71 2007-08 11.71 128.22 50.90 190.83 53.67 125.87 11.28 2008-09 11.28 133.38 54.20 198.86 55.81 130.44 12.61 2009-10 12.61 139.06 55.14 206.81 57.75 137.61 11.45 2010-11 11.45 146.14 58.24 215.84 60.18 144.19 11.46 CAGR 3.20% 4.43% 5.99% 4.77% 5.60% 4.80% 0.81% Edible oils have been finding their uses in many purposes such as cooking, industrial even as a fuel. With the technological advancement, edible oils are also finding its usage as an alternate energy source. World edible oil production is growing at the rate of 4.43% per annum since 2004-05 while consumption is growing at 4.80% per annum. Total supply of edible oil for 2010-11 is projected at 215.84 million tons, up 4.37% Y/Y while consumption is expected to increase by 4.8% to 144.19 million tons. Soybean Soybean is the single largest grown oilseeds in the world followed by Rapeseed (13%), Cotton seed (10%) and Peanut (8%). The production is region specific because these are grown in different agro-climatic conditions. Soybeans are largely grown in USA, Brazil, Argentina, China, India and Paraguay while Rapeseed is concentrated in EU-27, China, Canada and India. Cottonseed is largely grown in Asian countries especially in China, India and Pakistan. Peanuts are the largest growing oilseeds in China followed by India. A history Soybean has emerged as golden bean of 21 st century. It is a legume crop, which is widely used as an oilseed. It is the single largest oilseed grown in the world and grows in varied agro-climatic conditions. It has emerged as one of the important commercial crop in many countries. With the increasing popularity of beans globally, the international trade is spread globally. Most of the Asian and European countries are importing beans and its derivatives to meet their domestic demand. The Soybean is gaining popularity in recent years on account of its following unique characteristics: Adaptability to varied agro-climatic conditions Unmatched composition of 40% protein and 20% oil Nutritional superiority on account of protein containing essential amino acids, unsaturated fatty acids, carbohydrates, vitamins and minerals Significant role in preventing and treating chronic diseases such as heart ailments, osteoporosis, cancer, kidney ailments and menopausal syndromes Scope for manufacturing numerous processed food products Widely used as a source of animal feed 9

Table 6: Global Soybean Crop Calendar Country Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec USA Brazil Argentina China India Planting Flowering Harvesting USA, Brazil, Argentina, China and India are the largest soybean producing countries in the world. The season varies from country to country based on climatic conditions. The sowing season in US is starts in first week of May and continues till first week of July. The flowering starts from July to August and arrivals start from last week of September and lasts till last week of November. The yields and production of Soybean therefore highly depends upon the rainfall during the flowering and grain filling stage (July to September) and the extent of crop damage due to pests and diseases. The sowing in Brazil commences from the last fortnight of October and continues till December. Harvesting will be done between March and May. The critical stages for moisture stress are the flowering and grain filling stage (second fortnight of January to first week of March). The major producing centers are Mato Grosso, Parana, Rio Grande Do Sul, and Goias which contribute to 80% of Brazil s production. Argentina farmers plant the beans during November and December and harvest the crop during April and May. The flowering and grain filling stages during February - March are critical for moisture stress. In India, soybean is grown in kharif season with the commencement of South West monsoon. Sowing operations starts in the month of June and continue till July end. Its harvesting begins from end October and good quantum of arrivals can be seen till December end. Global scenario The prices of Soybeans, oil and meal are mainly determined by the supply and demand characteristics. The substitutable nature of these commodities with other similar products necessitates the analysis of production and consumption of the oil seeds and vegetable oils as a whole and their relative production, consumption and prices of other oil seeds, oil and meals. Table 7: World Soybean production, crushing, oil and meal recovery Soybean Bean crushed % of bean crushed Soy Meal % of Meal Soy Oil % of Oil 2004-05 215.78 175.36 81.27 138.64 79.06 32.54 18.56 2005-06 220.67 186.14 84.35 146.55 78.73 34.78 18.68 2006-07 237.13 195.48 82.44 153.77 78.66 36.33 18.59 2007-08 221.01 202.05 91.42 158.54 78.47 37.57 18.59 2008-09 211.96 192.71 90.92 151.43 78.58 35.70 18.53 2009-10 259.90 207.65 79.90 163.55 78.76 38.40 18.49 2010-11 253.69 219.75 86.62 173.13 78.78 40.82 18.58 10

Figure 2: World soybean Area, Production & Yield Soybean is one of the major oilseed crops in the world, which account 58% of total oilseed production. Among this, 85% of the world s production is crushed for oil and meal. The edible oil recovery is around 18-19% while the meal forms around 80%. The other uses of Soybeans are for preparation of food products like Soya Milk, Tofu, Nuggets, Flour, and Extruded Proteins etc and also as seed for the next crop. The oil is mainly consumed for the edible purposes while industry also uses the oil for drying purposes in the adhesive and varnishes etc. Less than 2% of the oil manufactured is used for industrial purposes and the rest is used for edible purposes. Figure3 : World soybean Production, Consumption & Stock/Use Ratio The world soybean acreage grew at a compounded annual growth rate of approximately 1.72% between 2004-05 and 2010-11. Production of the beans has been showing fluctuations due to variation in yield level caused by various weather factors. Nevertheless, production has been growing at a CAGR of 2.53% per annum. For 2009-10, United States Department of Agriculture has projected world soybean production at 253.69 million tons against 259.90 million ton a year ago. 11

Till 2005-06, world soybean production was higher than the consumption due to lesser demand from major importing nations. Since then consumption is outpacing the production as China started buying more soybeans from the US. Its consumption rose dramatically in last 4-5 years. Increased use of soybeans in various kinds like food, feed and fuel led the consumption growth. Figure 4: World soy map Source: KCTL Research USA, Brazil, Argentina, China and India are the largest soybean producing countries in the world. Since these five countries contributes roughly 92% of the total world soybean production, the agro economics and agro climatic conditions of these countries has an impact on the supply and therefore on the prices of the soy complex. The acreage of countries like Brazil, Argentina and India has been growing at a faster rate than other countries. China and India are the largest importers of Soy seeds and Soy oil respectively. These countries heavily depend on Argentina and Brazil to meet their growing domestic demand for vegetable oils. The acreage of soybeans in US is highly dependent on the favorable climatic conditions. However, with the increasing demand of corn for ethanol purposes and soy crops for bio-diesel purposes, US farmers plant both the crops, thus making corn and soy as the two largest crops grown in US. Corn and soy are grown in same area of US, hence, both these commodities compete with each for acreage. Weather conditions in US decide the acreage. If the country witness wet and humid weather condition then farmers go for planting soybean and vice-versa. Table 8: World soy supply-demand scenario (in million tons) US Brazil Argentina China India Soybean production 93.44 65.00 50.00 14.60 8.80 Soybean crushed 44.91 33.00 38.65 55.80 7.62 Soybean consumption 49.21 36.10 40.30 66.62 9.25 Soybean import 0.27 0.18 0.01 52.00 0.00 Soybean export 39.05 29.20 11.95 0.45 0.06 Meal production 35.59 25.58 29.95 44.16 6.15 Meal consumption 27.67 13.58 0.71 42.71 2.96 Meal import 0.15 0.01 0.00 0.05 0.01 Meal export 8.07 12.09 29.30 1.50 3.20 Oil production 8.53 6.33 7.40 9.95 1.39 Oil consumption 7.89 5.26 2.29 12.01 2.60 Oil import 0.05 0.05 0.00 2.15 1.18 Oil export 0.95 1.20 5.10 0.07 0.00 12

Table 9: Country-wise trade profile COUNTRY SOYBEAN SOY OIL United States Nearly 52% is used for domestic consumption and 40% is being exported About 92% of the oil produced is consumed domestically and 11% is exported Brazil Country consumes 55% of the bean produced and export 44% Around 83% of the oil consumed domestically and around 18% is exported Argentina 80% is consumed and 20% is exported It exports nearly 70% of the oil produced and rest is consumed China 78% of the total domestic consumption is met by imports and production contributes only 20% of the total consumption 80 % of the domestic demand is met by local production and other 20% is imported. India Almost the total beans produced are crushed and are used for meeting the growing demand for soy meal and soy oil. Imports are negligible. Demand is large and is met in the ratio of 60:40 (Imports: Production) Country wise profile United States Figure 5 : US soy map United States is the world s largest producer and exporter of soybeans. The area under soy bean cultivation has been increasing but could not keep up the pace with the other countries. The major soybean growing regions in US are concentrated in central states of Iowa, Illinois, Minnesota, Indiana and Ohio. The weather conditions in these states are to be closely observed for estimating the production. Figure 6: USA soybean Area, Production & Yield 13

The soybean production of US during 2010-11 is estimated at 93.44 million tons, which is 2.2% higher than last year. Output in US is showing an increasing trend since 2007-08. A rise in acreage and favourable weather condition for the crop is supporting the production growth. Higher return for soybean compared to other crops is also an advantage for the growth. Yield level improved substantially in last four years from 2.67 tons/hectare to 2.96 tons/hectare. US soybean area rose from 25.96 million hectares to 31.56 million hectares between 2007-08 and 2010-11. Table 10: US soybean balance sheet (in million tons) Beginning Stocks Production Imports Total Supply Exports Crush Consumption Ending Stocks 2004-05 3.06 85.02 0.15 88.23 29.86 46.16 51.41 6.96 2005-06 6.96 83.51 0.09 90.56 25.58 47.32 52.75 12.23 2006-07 12.23 87.00 0.25 99.48 30.39 49.20 53.47 15.62 2007-08 15.62 72.86 0.27 88.75 31.54 49.08 51.63 5.58 2008-09 5.58 80.75 0.36 86.69 34.82 45.23 48.11 3.76 2009-10 3.76 91.42 0.41 95.59 40.01 47.63 51.23 4.35 2010-11 4.35 93.44 0.27 98.06 39.05 44.91 49.21 9.80 CAGR -3.38 1.40 20.01 1.03 6.78-0.55-1.05-8.44 (Note: Projection for 2010-11 are based on August WASDE report) Looking into US soy balance sheet, we can infer that production has been increasing Y/Y on higher acreage. However, there was sharp decline in 2007-08 when the country witnessed a dry weather condition. During that year, most of the soy area was diverted for cultivation of corn. Yield of the crop was also less during that year compared to previous years. Thereafter, the output has been increasing as the weather pattern turned out favourable for the crop. The soybean production in US has been increasing year-after-year and current year production is projected at 93.44 million tons (as per August WASDE report). In September month World Agriculture Supply and Demand Estimates report, USDA raised US soybean output to 94.73 million tons as the yield level improved considerably. Table 11: Share of soybean in total oilseeds US (in million tons) Oilseeds Soybean % of Soybean Oil Meal Soy Meal % of Soy Meal Oil Soy Oil % of Soy Oil 2004-05 95.94 85.02 88.61 39.25 36.94 94.11 9.77 8.78 89.90 2005-06 95.67 83.51 87.29 39.91 37.42 93.75 10.42 9.25 88.73 2006-07 96.84 87.00 89.84 41.45 39.04 94.18 10.46 9.29 88.90 2007-08 82.45 72.86 88.36 40.87 38.36 93.85 10.55 9.34 88.53 2008-09 89.20 80.75 90.52 37.71 35.47 94.06 9.67 8.50 87.98 2009-10 98.90 91.42 92.43 39.87 37.67 94.49 10.00 8.87 88.73 2010-11 103.34 93.44 90.42 38.03 35.59 93.59 9.75 8.53 87.54 (Note: Projection for 2010-11 are based on August WASDE report) Of the total oilseeds produced in the US, soybean accounts for 90%. Soy meal contribution is 90-95% of the total oil meal while oil contribution is 85-90%. Table 12: US Soybean production, crushing, oil and meal recovery (in million tons) Soybean Bean crushed % of bean crushed Soy Meal % of Meal Soy Oil % of Oil 2004-05 85.02 46.16 54.29 36.94 80.02 8.78 19.03 2005-06 83.51 47.32 56.67 37.42 79.06 9.25 19.54 2006-07 87.00 49.20 56.55 39.04 79.35 9.29 18.89 2007-08 72.86 49.08 67.36 38.36 78.15 9.34 19.02 2008-09 80.75 45.23 56.01 35.47 78.43 8.50 18.80 2009-10 91.42 47.63 52.10 37.67 79.10 8.87 18.62 2010-11 93.44 44.91 48.06 35.59 79.26 8.53 19.00 (Note: Projection for 2010-11 are based on August WASDE report) 14

US soybean crushers crush nearly 45-50% of the soybean produced in the country and meal recovery in the country is 79-80%. The oil recovery is around 19-20%. The bean used for domestic is stagnant over the year, while exports are increasing. Soybean exports rose considerably especially China. Table 13: US soy oil balance sheet (in million tons) Beginning Stocks Production Imports Total Supply Exports Consumption Ending Stocks 2004-05 0.49 8.78 0.01 9.28 0.60 7.91 0.77 2005-06 0.77 9.25 0.02 10.04 0.52 8.15 1.37 2006-07 1.37 9.29 0.02 10.68 0.85 8.43 1.40 2007-08 1.40 9.34 0.03 10.76 1.32 8.32 1.13 2008-09 1.13 8.50 0.04 9.67 1.00 7.38 1.30 2009-10 1.30 8.87 0.05 10.22 1.47 7.30 1.44 2010-11 1.44 8.53 0.05 10.02 0.95 7.89 1.18 CAGR 15.75-0.92 30.99 0.60 13.78-1.27 4.79 (Note: Projection for 2010-11 are based on August WASDE report) Table 14: US soy meal balance sheet (in million tons) Beginning Stocks Production Imports Total Supply Exports Consumption Ending Stocks 2004-05 0.19 36.94 0.13 37.26 6.66 30.45 0.16 2005-06 0.16 37.42 0.13 37.70 7.30 30.11 0.29 2006-07 0.29 39.04 0.14 39.46 7.99 31.17 0.31 2007-08 0.31 38.36 0.13 38.80 8.38 30.15 0.27 2008-09 0.27 35.47 0.08 35.82 7.71 27.90 0.21 2009-10 0.21 37.67 0.13 38.01 10.43 27.31 0.27 2010-11 0.27 35.59 0.15 36.02 8.07 27.67 0.27 CAGR 5.94-0.69-0.89-0.65 4.59-2.10 4.36 (Note: Projection for 2010-11 are based on August WASDE report) 15

Brazil Figure 7: Brazil soy map production is estimated at 69 million tons. Brazil is the second largest producer and exporter of soybeans in the world. The acreage of soybean in Brazil have been growing faster than any other major producer in the world. The major producing centres are concentrated in the southern coastal regions of Brazil, which are nearer to the ports. The development of infrastructural and transport facilities have facilitated the expansion of soy growing regions in the interior regions also. Brazilian soybean production was growing at a constant rate since 2007-08 on higher acreage and favourable weather condition. But, in 2008-09, output declined drastically on lower yield caused by drought condition in the country. Since then production has been fluctuating. In 2008-09, production fell 5.25% to 57.80 million tons. In 2009-10, production reached to peak in the current decade. For 2009-10, Brazil soybean Figure 8: Brazil soybean Area, Production & Yield About 50% of the Brazilian soybean production is crushed for oil and meal. Recovery percent of oil and meal is 19% and 78%, respectively. Meal recovery has been hovering in the range of m77-78% while that of oil is 19-19.20%. Table 15: Brazil Soybean production, crushing, oil and meal recovery (in million tons) Soybean Bean crushed % of bean crushed Soy Meal % of Meal Soy Oil % of Oil 2004-05 53.00 29.73 56.09 23.04 77.50 5.71 19.21 2005-06 57.00 28.75 50.45 22.28 77.48 5.52 19.20 2006-07 59.00 31.51 53.41 24.42 77.50 6.05 19.20 2007-08 61.00 31.90 52.29 24.72 77.50 6.12 19.19 2008-09 57.80 30.78 53.25 23.85 77.49 5.91 19.20 2009-10 69.00 33.79 48.96 26.18 77.49 6.48 19.18 2010-11 65.00 33.00 50.77 25.58 77.52 6.33 19.18 16

Total supply of the produce in 2009-10 is estimated at 70.34 million tons, which included 1.16 million tons of carry forward stocks, 69 million tons of production and 0.19 million tons of imports. Crushing and consumption demand for 2009-10 is projected at 33 million tons and 36.10 million tons respectively. For 2010-11, USDA has projected Brazilian soy crop size at 65 million tons, down 5.8% Y/Y. Brazilian soy oil production in 2009-10 season rose 10% to 6.48 million tons. The country consumes around 83% of the oil produced and rest is exported. As far as meal is concerned, consumption and exports are nearly 50-50. Meal production for 2009-10 is estimated at 26.18 million tons. Table 16: Brazil soybean balance sheet (in million tons) Beginning Stocks Production Imports Total Supply Exports Crush Consumption Ending Stocks 2004-05 3.60 53.00 0.35 56.95 22.80 29.73 32.52 1.64 2005-06 1.64 57.00 0.04 58.68 24.77 28.75 31.65 2.25 2006-07 2.25 59.00 0.11 61.36 23.81 31.51 34.45 3.11 2007-08 3.11 61.00 0.08 64.19 24.52 31.90 34.86 4.82 2008-09 4.82 57.80 0.12 62.74 28.04 30.78 33.55 1.16 2009-10 1.16 69.00 0.19 70.34 29.95 33.79 36.74 3.66 2010-11 3.66 65.00 0.18 68.83 29.20 33.00 36.10 3.53 CAGR 0.41 3.54 4.02 3.46 4.70 2.21 2.11 8.51 Table 17: Brazil soy oil balance sheet (in million tons) Beginning Stocks Production Imports Total Supply Exports Consumption Ending Stocks 2004-05 0.38 5.71 0.00 6.09 2.70 3.10 0.30 2005-06 0.30 5.52 0.02 5.83 2.32 3.21 0.31 2006-07 0.31 6.05 0.06 6.42 2.52 3.60 0.30 2007-08 0.30 6.12 0.01 6.43 2.20 3.99 0.24 2008-09 0.24 5.91 0.04 6.19 1.50 4.42 0.27 2009-10 0.27 6.48 0.05 6.80 1.35 5.17 0.29 2010-11 0.29 6.33 0.05 6.67 1.20 5.26 0.21 CAGR -4.19 2.19 43.28 1.96-13.40 10.28-4.08 Table 18: Brazil soy meal balance sheet (in million tons) Beginning Stocks Production Imports Total Supply Exports Consumption Ending Stocks 2004-05 0.84 23.04 0.24 24.13 14.26 9.13 0.74 2005-06 0.74 22.28 0.21 23.23 12.29 10.08 0.86 2006-07 0.86 24.42 0.15 25.43 12.35 11.52 1.56 2007-08 1.56 24.72 0.14 26.43 12.71 12.00 1.72 2008-09 1.72 23.85 0.09 25.65 12.15 12.20 1.30 2009-10 1.30 26.18 0.12 27.60 12.94 13.00 1.66 2010-11 1.66 25.58 0.12 27.36 12.09 13.58 1.69 CAGR 14.80 2.21-12.74 2.65-1.44 6.47 13.79 17

Argentina Figure 9: Argentina soy map Argentina contributes roughly 22% of world s production and is the third largest producer. The major Soybean growing regions of Argentina are Cordoba, Santa Fe and Buenos Aires which are located on the eastern side of the country and constitute 77% of the area. The year 2008-09 was very bad year in Argentina agriculture history. The country witnessed a severe drought in last four decades. The effect of drought was reflected on soybean production, which fell 31% Y/Y to 32 million tons. Export of soybean and its derivatives also hit during that year as exporters were reluctant to export as the government decided to hike export price of soy products. The situation recovered very next year i.e., in 2009-10 where production rose to a record level on sharp rise in acreage. Climatic conditions also favoured for improving yield from 2 tons/hectare to 2.93 tons/hectare. Production for 2009-10 is estimated at 54.5 million tons. Based on current price trend and assuming normal weather condition, USDA has projected 2010-11 crop size would be 50 million tons. It is expected that carry-forward stocks at the beginning of new season will be at record high of 7 million tons. Figure 10: Argentina soybean Area, Production & Yield 18

Table 19: Argentina soybean balance sheet (in million tons) Beginning Stocks Production Imports Total Supply Exports Crush Consumption Ending Stocks 2004-05 2.16 39.00 0.71 41.87 10.69 29.56 31.01 0.17 2005-06 0.17 40.50 1.01 41.69 7.13 32.75 34.22 0.33 2006-07 0.33 48.80 2.34 51.47 12.13 35.96 37.46 1.87 2007-08 1.87 46.20 2.95 51.02 11.80 31.88 33.45 5.76 2008-09 5.76 32.00 0.16 37.92 3.49 28.55 30.14 4.30 2009-10 4.30 54.50 0.01 58.80 12.20 38.00 39.60 7.00 2010-11 7.00 50.00 0.01 57.00 11.95 38.65 40.30 4.75 CAGR 57.89 3.33-58.64 4.78 0.58 3.16 3.12 82.44 Table 20: Argentina Soybean production, crushing, oil and meal recovery (in million tons) Soybean Bean crushed % of bean crushed Soy Meal % of Meal Soy Oil % of Oil 2004-05 39.00 29.56 75.79 23.35 78.99 5.56 18.80 2005-06 40.50 32.75 80.86 25.58 78.12 6.17 18.84 2006-07 48.80 35.96 73.69 27.86 77.46 6.92 19.23 2007-08 46.20 31.88 69.01 24.84 77.91 6.04 18.93 2008-09 32.00 28.55 89.23 22.53 78.91 5.45 19.08 2009-10 54.50 38.00 69.72 29.45 77.49 7.24 19.05 2010-11 50.00 38.65 77.30 29.95 77.49 7.40 19.15 Out of total soybean produced in Argentina, it crushes around 75-80% of the produce. Oil and meal recovery is 19% and 78% respectively. Argentina soy meal production is growing at CAGR of 2.96% since 2004-05. Meal production for 2009-10 is estimated at 29.45 million tons and for 2010-11 it is projected at 29.95 million tons. Growth of oil production is very encouraging and it is growing at annual rate of 3.41%. Table 21: Argentina soy oil balance sheet (in million tons) Beginning Stocks Production Total Supply Exports Consumption Ending Stocks 2004-05 0.30 5.56 5.86 5.08 0.40 0.39 2005-06 0.39 6.17 6.55 5.67 0.40 0.49 2006-07 0.49 6.92 7.40 6.52 0.68 0.21 2007-08 0.21 6.04 6.25 4.99 1.13 0.14 2008-09 0.14 5.45 5.59 3.71 1.72 0.16 2009-10 0.16 7.24 7.40 5.10 2.12 0.18 2010-11 0.18 7.40 7.58 5.10 2.29 0.19 CAGR -15.34 3.41 2.64-2.69 40.53 Table 22: Argentina soy meal balance sheet (in million tons) Beginning Stocks Production Total Supply Exports Consumption Ending Stocks 2004-05 1.59 23.35 24.94 22.70 0.55 1.69 2005-06 1.69 25.58 27.27 24.72 0.57 1.97 2006-07 1.97 27.86 29.83 28.11 0.63 1.10 2007-08 1.10 24.84 25.94 24.39 0.63 0.92 2008-09 0.92 22.53 23.45 21.30 0.65 1.50 2009-10 1.50 29.45 30.95 29.09 0.69 1.17 2010-11 1.17 29.95 31.12 29.30 0.71 1.12 CAGR -6.63 2.96 2.45 2.95 4.21-6.79 19

China China is the world s most populated country and is the largest importer of soybean in the world. China typically imports high quantities of beans and processes them into oil and meal. The major growing regions of China are in the north eastern provinces of china. Today China has turned from net exporter to net importer. The sowing of Soybean starts in the months of April- May and the market arrivals of the fresh crop start in the months of September- October. The provinces of Heilongjiang, Shandong and Henan have the major Soybean growing regions of china. Figure 11: China soybean Area, Production & Yield Table 23: China soybean balance sheet (in million tons) Beginning Stock Production Import Import from US Total Supply Exports Crush Consumption Ending Stock 2004-05 2.10 17.40 25.80 11.87 45.30 0.39 30.36 40.21 4.70 2005-06 4.70 16.35 28.32 9.71 49.37 0.35 34.50 44.44 4.57 2006-07 4.57 15.97 28.73 11.51 49.27 0.45 35.97 46.12 2.70 2007-08 2.70 14.00 37.82 13.73 54.52 0.45 39.52 49.82 4.25 2008-09 4.25 15.54 41.10 18.65 60.88 0.40 41.04 51.44 9.05 2009-10 9.05 14.70 49.50 22.15 73.25 0.25 48.48 59.08 13.92 2010-11 13.92 14.60 52.00 20.00 80.52 0.45 55.80 66.62 13.45 CAGR 27.99-2.70 13.63 14.12 10.23-1.33 9.88 8.15 26.53 Being a fourth largest producer, Chinese contribution to the world soy production is just 6%. However, its production is not sufficient to meet the demand. Hence, the nation is depending on import of bean and oil. USDA has estimated Chinese soybean production for 2010-11 at 14.6 million tons and consumption at 66.62 million tons. The country s imports are projected at 52 million tons of which 20 million tons are imported from US alone. China imports around 78% of its bean and 82% of oil requirement from other nations. 20

Table 24: China Soybean production, crushing, oil and meal recovery (in million tons) Soybean Bean crushed % of bean crushed Soy Meal % of Meal Soy Oil % of Oil 2004-05 17.40 30.36 174.49 24.03 79.13 5.42 17.85 2005-06 16.35 34.50 211.01 27.30 79.12 6.15 17.82 2006-07 15.97 35.97 225.28 28.47 79.14 6.41 17.82 2007-08 14.00 39.52 282.27 31.28 79.15 7.05 17.83 2008-09 15.54 41.04 264.06 32.48 79.14 7.31 17.82 2009-10 14.70 48.48 329.80 38.37 79.14 8.64 17.82 2010-11 14.60 55.80 382.19 44.16 79.14 9.95 17.82 Table 25: China soy oil balance sheet (in million tons) Beginning Stock Production Import Import from US Total Supply Export Consumption Ending Stock 2004-05 0.34 5.42 1.73 0.00 7.49 0.04 7.20 0.25 2005-06 0.25 6.15 1.52 0.00 7.91 0.11 7.61 0.20 2006-07 0.20 6.41 2.40 0.15 9.01 0.09 8.67 0.25 2007-08 0.25 7.05 2.73 0.21 10.02 0.10 9.69 0.23 2008-09 0.23 7.31 2.49 0.05 10.04 0.08 9.49 0.47 2009-10 0.47 8.64 1.60 0.05 10.71 0.08 10.42 0.20 2010-11 0.20 9.95 2.15 0.05 12.30 0.07 12.01 0.22 CAGR -0.57 9.86 2.90 79.10 8.17 3.67 8.38 1.00 Table 26: China soy meal balance sheet (in million tons) Production Import Total Supply Export Consumption 2004-05 24.03 0.07 24.10 0.66 23.44 2005-06 27.30 0.84 28.13 0.36 27.78 2006-07 28.47 0.03 28.50 0.87 27.63 2007-08 31.28 0.20 31.48 0.63 30.85 2008-09 32.48 0.22 32.69 1.02 31.67 2009-10 38.37 0.07 38.43 1.55 36.88 2010-11 44.16 0.05 44.21 1.50 42.71 CAGR 9.88-13.84 9.66 22.00 9.35 21

Indian Scenario Figure 12: Share of oilseeds production in India Oilseeds are one of the commercially grown crops in India along with cereals, pulses and spices. Majority of the oilseeds grown in India are planted and harvested in Kharif season except few like Mustard Seed and Linseed. Major oilseeds grown in India are Soybean, Mustard Seed, Groundnut, Sesame, Sunflower, Linseed and Niger Seed. On crushing of these seeds, they yield oil as well as oil cake. Oil is used for edible, industrial and many more purposes while oil cakes are mainly used to feed the livestock. Source: MOA & KCTL Research position accounting for 20% to total oilseeds production. Among the nine oilseeds grown in India, soybean is the single largest crop produced in India with a share of 43% followed by mustard seed with 29% contribution to total oilseeds production. Groundnut is in third Table 27: Kharif oilseeds production in India Oilseeds 2009-10 2008-09 Change (% Y/Y) Soybean 85 89-4.49 Toria 1.5 1.5 0 Groundnut 32.9 42.2-22.04 Sunflower 3.2 4-20 Castor Seed 8.8 9.8-10.2 Sesame 4.3 3 43.33 Niger Seed 0.8 0.8 0 Total 136.5 150.3-9.18 Source: SEA and KCTL Research The Solvent Extractors Association of India has pegged India s kharif oilseeds production for 2009-10 at 136.52 lakh tons, down 9.18% Y/Y. The major fall was observed in ground nut, sunflower and castor seed due to lower acreage under the crop. There was a sharp rise in output of sesame seed, which rose by 43% Y/Y. 22

Soybean Indian trend Figure 13: India soy map India is the fifth largest producer of soybeans in the world and it is also second largest import of vegetable oil after China. India s share in total production is around 4-5%. The area under Soybean cultivation in India has been increasing over the years as farmers are showing more interest on this crop. Climatic conditions and better price realization is also helping for rise in acreage. Due to weather aberrations there has been fluctuation in the yield levels, which is resulting into varying production. In India Soy Bean is mainly cultivated central India mainly in states like Madhya Pradesh, Maharashtra, Rajasthan, Andhra Pradesh etc. Madhya Pradesh accounts for more than 50% of the area and production. Since it is grown in kharif season, it is largely dependent on rainfall. Hence, rainfall distribution plays a crucial role on yield of the crop. Due to unfavourable weather condition in July and August last year, we have witnessed a lower production despite rise in acreage. Source: KCTL Research India holds the lowest rank in terms of yield level. Its productivity is much lower than world average. Average yield in India is 0.95 tons/hectare whereas world average is at 2.49 tons/hectare. Highest yield is in US at 2.96 tons/hectare. Figure 14: Soybean yield Over the years, area as well as production of soybean has increased enormously. Thanks to research institutes, who put their heart and soul to develop high yielding varieties and made the country to become self sufficient in soybean and export a good quantum of soy meal to other Asian countries. Cropping pattern in India In India, sowing of soybean starts after first spell of South West Monsoon rains i.e., from June and continue till end of August. Flowering stage starts from second fortnight of July till third week of August. Pod setting, a crucial period starts from last week of August and continue till end of September. Harvesting starts by end of August. Market arrivals starts from September till last week of December. Supply demand scenario Soybean area in India has seen a tremendous change from below a million hectares levels in 1981-82 to 9.3 million hectares in the current year. But production was unpredictable due to fluctuating yield levels. Indian production in last 4-5 years has been maintaining over 8 million tons thanks to State Agriculture Universities, various research institutes and continuous encouragement provided by both central as well as state governments. 23

Figure 15: India soybean Area, Production & Yield The production of soybean has been rising year by on increased acreage. A record of 9.47 million tons of soybean production was seen in the year 2007-08. Thereafter, it has declined on lower yield due to unfavourable weather condition. In 2009-10, the nation produced 8.5 million tons of soybeans, down 4.5% Y/Y. Though acreage last year was similar to previous years, production fell due to fall in yield due to unfavourable weather condition. In India, soybean is mainly used for crushing purpose to get the meal. India is the largest exporter of soy meal in Asian continent. There has been good export demand for Indian soy meal especially from South East Asian countries. The reason behind this is the proximity and availability of non-gmo soy meal. Of the total soybean produced in the country 80-90% goes for crushing. The varied uses of Soybean and increasing per capita consumption of Soy Oil due to its high protein content drives up the demand of this oil seed. The other major demand driving factor is its return compared to other major Indian oil seeds like Groundnut, Sunflower, Cotton seed and Rapeseed. The Soy oil prices and its competitiveness with respect to Palm oil prices also influence the demand for this oil seed. Table 28: Soybean balance sheet India (in million tons) Beginning Stocks Production Total Supply Exports Crush Consumption Ending Stocks 2004-05 0.07 5.85 5.92 0.01 5.03 5.82 0.09 2005-06 0.09 7.00 7.09 0.01 5.99 6.98 0.11 2006-07 0.11 7.69 7.80 0.01 6.62 7.74 0.05 2007-08 0.05 9.47 9.52 0.01 8.17 9.40 0.12 2008-09 0.12 8.90 9.22 0.06 7.50 8.83 0.34 2009-10 0.33 8.50 9.08 0.05 6.20 7.75 1.28 2010-11 1.28 8.80 10.08 0.05 7.62 9.24 0.78 24

Table 29: Soy oil balance sheet India (in million tons) Beginning Stocks Production Import Total Supply Consumption Ending Stock 2004-05 0.04 0.81 2.03 2.87 2.74 0.12 2005-06 0.12 1.24 1.73 3.09 3.00 0.08 2006-07 0.08 1.16 1.45 2.68 2.50 0.17 2007-08 0.17 1.50 0.73 2.40 2.33 0.06 2008-09 0.06 1.29 1.06 2.41 2.30 0.10 2009-10 0.10 1.19 1.50 2.79 2.67 0.12 2010-11 0.12 1.39 1.18 2.69 2.60 0.08 CAGR 11.69 6.01-7.60-1.80-1.67-2.56 India s soy oil production is hovering in the range of 1.0-1.5 million tons annually whereas consumption is around 2.5-3.0 million tons. Oil produced from the domestic crushing meets only 45% of the annual consumption and remaining 55% is being imported. India normally imports the soy oil from South American countries. Figure 16: Monthly soy oil import (in tonnes) Source: SEA and KCTL Research Soy oil import in India has been showing an increasing trend over last couple of years. Rising consumption demand as food and industrial purpose is leading to heavy imports. During November 2009 to August 2010, soy oil imports rose to 1.35 million tons beating last year s total imports. In the oil year 2008-09, India imported 0.98 million tons of soy oil. Cheaper availability of imported oil due to lower international price and nil import duty resulted into heavy imports into the country. We are having another two months of the current oil year and imports are likely to be higher. Table 30: Soy meal balance sheet India (in million tons) Beginning Stocks Production Total Supply Export Consumption Ending Stock 2004-05 0.17 3.62 3.80 2.24 1.37 0.19 2005-06 0.19 5.54 5.73 4.27 1.35 0.12 2006-07 0.12 5.18 5.30 4.14 1.02 0.13 2007-08 0.13 6.71 6.84 5.29 1.45 0.11 2008-09 0.11 5.75 5.86 3.81 1.95 0.10 2009-10 0.10 5.31 5.42 2.60 2.65 0.17 2010-11 0.17 6.15 6.33 3.20 2.96 0.17 CAGR -4.33 5.93 5.58-0.03 16.68 0.66 25

As said above, India is the largest exporter of soy meal in Asian continent. Most of the South East Asian countries buy soy meal from India because of proximity and it is made from non-gmo crop. Of the total meal produced in India, it export more than 50% and remaining is consumed by domestic users. The soy meal export hit very badly in 2009-10 soybean season. Starting from November as most of the importing countries slowed down their purchases because of economic slowdown. Higher rate of Indian meal compared to other countries was also one of the reasons. Soy meal exports in FY10 hit 5-year low. Shipment declined to 2.11 million tons in 2009-10 from 4.17 million tons in 2008-09. Figure 17: Monthly soy meal exports (in tonnes) Source: SEA and KCTL Research Vietnam, Japan and Thailand are the largest export destinations for India. Of the total exports, around 35% is shipped to Vietnam, 26% to Japan, 12% to Thailand. Asian countries accounts for 86% of India s soy meal export, 10% to Middle East countries and remaining is to European countries. State profile Madhya Pradesh Table 31: Division wise area, production & yield of soybean Madhya Pradesh Division Area Yield Production Ujjain 16.73 1092 18.27 Indore 7.95 1249 9.93 Bhopal 9.99 974 9.73 Hoshangabad 5.52 1008 5.56 Sagar 4.48 853 3.82 Jabalpur 3.76 1012 3.81 Gwalior 3.55 858 3.05 Rewa 1.00 912 0.91 Total 52.99 1040 55.08 Source: SOPA and KCTL Research In Madhya Pradesh, soybean cultivation is concentrated in western and southern district. A unique climatic condition in these areas is favouring the crop growth. Ujjain division is the largest soy cultivating area having a share of 33% in production and 32% in area followed by Indore 18% share in production. Least contribution is from Rewa and Gwalior division. 26

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Table 32: Division wise area, production & yield of soybean Maharashtra Division Area Yield Production Amravati 12.37 1013 12.53 Latoor 6.92 1016 7.04 Nagpur 6.58 980 6.45 Nasik 1.20 962 1.15 Aurangabad 1.04 976 1.01 Kolhapur 1.49 600 0.89 Pune 0.73 976 0.71 Total 30.32 982 29.77 Source: SOPA and KCTL Research Maharashtra is the second largest soybean producing state in India. It accounts for 34% of the India s bean production. The crop is largely cultivated in Amravati division, which accounts for 42% of the state s output followed by Latoor (24%) and Nagpur (22%). These districts are located in central plateau region of the country. Table 33: Division wise area, production & yield of soybean Rajasthan Division Area Yield Production Kota 5.47 855 4.68 Udaipur 0.15 815 0.12 Bhilwara 1.47 879 1.30 Total 7.09 859 6.09 Source: SOPA and KCTL Research Soybean cultivation in Rajasthan is concentrated in South East region of the state. Kota region is the largest producing centre accounting for 76% of the state s total output followed by Bhilwara region (21%). Based on largest growing districts in three major states, we can infer that all of them fall in west and central plateau region of the country. Apart from above mentioned states, it is also grown in other states such as Andhra Pradesh, Karnataka, Chhattisgarh etc with a little share in total production. Present situation: Area brought under Soybean Cultivation 2009 2010 The soybean sowing in the current kharif season started with sluggish note as the 25-Jun 1.63 1.05 rainfall distribution in central India was not satisfactory in June month. In late-june, monsoon activity was subdued and the entire was in deficit of rainfall, hence, resulted 2-Jul 2.88 12.13 into sluggish sowing activity. Monsoon revived and brought sufficient rainfall across 12-Jul 31.62 34.23 central India in July month, sowing was in full swing and increased manifold each 16-Jul 60.31 61.07 week vis-à-vis same period last year. But, later in August, the situation reversed as the 23-Jul 81.53 80.28 farmers shifted to planting other crops. Farmers preferred cultivation of other crops like pulses and cotton as these two crops yielded higher returns last season compared 30-Jul 90.73 85.33 to soybean. Huge unsold stock of soybeans with the famers was also one of the 5-Aug 93.68 89.72 reasons for lower acreage. For the current kharif season, central government raised 15-Aug 93.77 90.72 MSP of pulses by 10-30% while soybean MSP was raised by only 5%. This could be also one of the reasons for the lower acreage. Though acreage under soybean 20-Aug 93.82 91.81 cultivation is lower than last year, we may a higher output as the yield level is likely to 31-Aug 95.00 93.00 improve. Beneficial rains in late-july and August augured well for growth of the crop and resulting into a record yield. The Indore based National Research Centre of Soybean has projected India s soy yield in the current year is likely to be 1200-1250 kg/hectare. 28

Price action Figure 21: Price movement: Soybean and soy meal Source: KCTL Research Soybean prices in Indian market are largely dependent on prices of soy meal. This movement can be seen in the above mentioned graph. This indicates price movement of soy meal drives the prices of soybean. Looking into soy meal demand, Indian oil extractors procure beans from the market. The basic reason is, on crushing soybean yields 80% of meal and 18-20% of oil. Soy Oil price movement does not has direct impact of soybean price movement because it closely tracks the international edible oil market. India is the largest exporter of soy meal in Asian continent and major destinations are Vietnam, Thailand, Philippines, Korea etc. Price outlook: Soybean India is getting ready for new soybean harvesting season and we may see huge inflow of the produce to the spot markets. An increase in inflow of the produce to the spot market might have a bearish impact on the market. Nevertheless, the futures market has been reacting to likely arrivals of fresh produce and prices falling on hopes of better crop this year. Harvesting of early sown crop is underway and is likely to pick up in the days ahead. November and December are the peak arrival period for soybeans. Hence, we may see higher arrivals and is likely to have a bearish impact on the market. Soybean production for 2010-11 is likely to be in the range of 95-100 lakh tons against 85 lakh tons produced last year. On global front, US crop is getting ready for harvesting and its crop size is expected at record level. Therefore, soybean market in India as well as international market is likely to be in bearish note for a short term. Once the arrival pressure starts easing from both the countries we may see an improvement in the prices. Indian traders are very optimistic that they will get good oil meal export orders from South East Asian countries. To support this, they are already getting fresh enquiries as the Indian price is at par with other origins. Negative crush margin is a cause of concern for the industry. We are optimistic that crush margin may turn positive in the new season. Since, Indian soy meal prices are at par with other countries we may see good export demand for India. Technical analysis CBOT Soybean In short term, the bias remains on the lower side as long as the market holds resistance at 1085 levels. A minor correction is expected which is described as the e wave of wave Y in combination corrections as shown in the chart. This view remains intact for short term supported by the stiff resistance at 1078 (wave b ). On the lower side support is near 950 levels (converging point of both wave a and wave c ). Sustained trade above is possible to bring the rally. In long term picture, we expect CBOT soybean futures to trade higher, which is near to the verge of completing its correction wave Cycle 2. As per our expectation, if market makes failed attempt to breach the support at 950 levels is expected to resume bullish trend. Moreover, on the higher side resistance is at 1085 levels. On break above would lead the market to continue its upside momentum. Outlook: We expect soybean prices to trade higher and recommend buying near support levels. Incase market breaches the support at 950 levels is possible to extend its correction till 880 levels. Overall, we recommend buying if market sustain well above 950 levels. 29

Figure 21: CBOT soybean futures price movement Source: Bloomberg and KCTL Research Commodity S2 S1 R1 R2 Recommendation CBOT Soybean (Cents/bushel) 880 950 1130 1300 Buy at 1000-1020 TP 1250 SL 930 NCDEX Soybean (`/Quintal) 1850 1980 2320 2450 Buy at 1980-2020 TP 2300, 2400 SL 1840 Soy Oil In CY10, the soy oil futures on Indian exchanges are trading in the range of 410-510 per 10 kg. We have seen a rally in the prices during first week of July to first week of August on strong buying interest. Concerns of new crop size due to lower acreage and unfavourable weather condition led the rally. Furthermore, there was stockist buying ahead of festive season. But, the market could not sustain the gains and reversed the trend starting from second week of August. In the near-term the soy oil futures prices are likely to be on a bearish trend. India is having a huge stock of edible due to heavy imports in the recent past. The landed cost of soy oil import was lesser compared to indigenously produced oil due to lower international price and nil import duty. Indian government slashed import duty on import of crude edible oil to zero in 2008 following sky-rocketing of the prices. It is likely to continue for some more time amidst continued appeal from the industry for revision. In the current oil year, soy oil imports rose 64% Y/Y to 1.35 million tons, which is a record imports in recent years. Huge stock and commencement of new crushing season is likely to be a bearish factor for the market in near term. In the long term, prices are likely to resume upward on fresh buying at lower levels. 30

Technical analysis We had seen a complex correction approximately for the past two years. Initial bias remains sideways to higher for short term. A lower correction cannot be ruled out as long as it holds the resistance at 42.71 levels. The correction from 42.71 to 37 levels is expected as indicated by wave E of wave Y of Cycle 2. On the downside, if market fails to sustain below 37 levels may lead the prices to rise from this levels described as leg wave 1 of fresh trend. The key level to watch is at 35.32 levels (61.8% retracement of the range 14.75-68.59 levels). Sustained trade above is possible to resume fresh trend. Overall, we expect prices to see a downside correction before resuming its uptrend. However, sustain above 35-37 levels may lead the market to begin with fresh trend for short long term. Figure 22: CBOT soy oil futures price movement Source: Bloomberg and KCTL Research Commodity S2 S1 R1 R2 Recommendation CBOT Soy Oil (Cents/lb) 32 37 44.40 48 Buy at 40.50-41.20 TP 46/47 SL 37 NCDEX Soy Oil (`/10 kg) 450 475 515 530 Buy at 474-478 TP 510, 520 SL 455 MCX Soy Oil (`/10 kg) 450 475 515 530 Buy at 474-478 TP 510, 520 SL 455 31

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CRUDE PALM OIL Introduction Oil Palm is one of the commercially cultivated oilseeds having its origin from West Africa where it was cultivated as wild and later developed into a commercial crop. It was introduced to Java by the Dutch in 1848 and Malaysia (then the British colony of Malaya) in 1910 by Scotsman William Sime and English banker Henry Darby. The first plantations were mostly established and operated by British plantation owners, such as Sime Darby. From the 1960s a major oil palm plantation scheme was introduced by the government with the main aim of eradicating poverty. Processing of oil palm for edible oil has been in practice in Western Africa for thousands of years. The oil extracted is highly coloured and flavoured, is an essential ingredient in most of the tradition West African cuisine. The traditional process of processing is simple, but tedious and inefficient. Palm trees may grow up to sixty feet and more in height. The trunks of young and adult plants are wrapped in fronds which give them a rough appearance. The older trees have smoother trunks apart from the scars left by the fronds which have withered and fallen off. A normal oil palm tree will start bearing fruits after 30 months of planting and will continue to be productive for the next 20 to 30 years thus ensuring a consistent supply of oil. Each ripe bunch is commonly known as Fresh Fruit Bunch (FFB). In Malaysia, the trees planted are mainly the tenera variety, a hybrid between the dura and pisifera. The tenera variety yields about 4 to 5 tonnes of crude palm oil (CPO) per hectare per year and about 1 tonne of palm kernels. The oil palm is most efficient, requiring only 0.25 hectares to produce one tonne of oil while soybean, sunflower and rapeseed need 2.15, 1.50 and 0.75 hectares respectively. The palm fruit is the source of both palm oil (extracted from palm fruit) and palm kernel oil (extracted from the fruit seeds). Palm oil itself is reddish because it contains a high amount of beta-carotene. It is used as cooking oil, to make margarine and is a component of many processed foods. Boiling it for a few minutes destroys the carotenoids and the oil becomes colourless. Palm oil is one of the few vegetable oils relatively high in saturated fats (like coconut oil) and thus semi-solid at room temperature. History The oil palm tree was discovered thousands of years back in Western Africa. European merchants having trade with West Africa purchased palm oil occasionally for use in Europe. But its importance as an edible oil remained rare outside West Africa mainly because of its bulkiness and cheaper source of oil compared to others. During the 14 th to 17 th centuries some palm fruits were taken to the America and from there to the Far East. The plant thrived best in the Far Eastern countries and provided the largest commercial production base by removing its importance from centre of origin. Palm oil became a highly adored commodity by British traders, the oil being used as industrial lubricant for the machines of Britain's Industrial Revolution, as well as forming the basis for different brands of soap. By 1870, palm oil constituted the primary export of some West African countries such as Ghana and Nigeria. The extensive development of oil palm industries in many countries in the tropics has been motivated by its extremely high potential productivity. The oil palm gives the highest yield of oil per unit area compared to any other crop and produces two distinct oils palm oil and palm kernel oil both of which are important in world trade. 33

Importance The oil palm is now grown as a plantation crop in most of the countries receiving minimum rainfall of 1600 mm/year because of its economic importance and high yielding source of edible oil. The palm tree bears fruit in bunches varying in weight from 10 to 40 kg. Each fruit ranging from 6 to 20 gm is made up of an outer skin called as exocarp, a pulp called mesocarp contain the palm oil in a fibrous form. Central nut consists of a shell known as endocarp and the kernel, which also contains oil. Early Trade in Palm World trade in palm oil started at the turn of nineteenth century while palm kernel trade begun after 1832. After abolition of slave trade, palm oil has become principal cargo of slave ships. Industrial revolution in Europe has resulted into establishment of international trade in palm oil especially from West Africa. Sanitation and hygiene among Europeans created additional demand for soaps resulting in the demand for vegetable oils suitable for soap manufacture. The export of palm kernels also began in 1832 and by 1911 British West Africa alone exported 157,000 tons of which about 75 percent came from Nigeria. Nigeria was the largest exporter until 1934 when the country was surpassed by Malaysia. Africa led the world in production and export of palm oil throughout the first half of the 20 th century, led by Nigeria and Zaire. By 1966, Malaysia and Indonesia surpassed Africa s total palm oil production. A unique feature of the oil palm is that it produces two types of oil - palm oil from the flesh of the fruit, and palm kernel oil from the seed or kernel. For every 10 tons of palm oil, about 1 tone of palm kernel oil is also obtained. Several processing operations are used to produce the finished palm oil that meets the users' requirements. The first step in processing is at the mill, where the crude palm oil is extracted from the fruit. The various steps in extraction are shown in the Flow Chart. Conversion of crude palm oil to refined oil involves removal of the products of hydrolysis and oxidation, colour and flavour. After refining, the oil may be separated (fractionated) into liquid and solid phases by thermo-mechanical means (controlled cooling, crystallization, and filtering), and the liquid fraction (olein) is used extensively as a liquid cooking oil in tropical climates, competing successfully with the more expensive groundnut, corn, and sunflower oils. Extraction of oil from the palm kernels is generally separate from palm oil extraction, and will often be carried out in mills that process other oilseeds (such as groundnuts, rapeseed, cottonseed, and copra). The stages in this process comprise grinding the kernels into small particles, heating (cooking), and extracting the oil using an oilseed expeller or petroleum-derived solvent. The oil then requires clarification in a filter press or by sedimentation. Extraction is a well-established industry, with large numbers of international manufacturers able to offer equipment that can process from 10 kg to several tonnes per hour. The crude palm oil may be further refined (second stage of processing) to get a wide range of palm products of specified quality. The partly and wholly processed grades require little further treatment before use, offering enduser a saving in processing costs. Palm oil may also be fractionated, using simple crystallization and separation processes to obtain solid (stearin) and liquid (olein) fractions of various melting characteristics. The different properties of the fractions make them suitable for a variety of food and non-food products. 34

Supply demand scenario Global Scenario Figure 23: World crude palm oil production Malaysia, world s largest palm oil producer till 2003-04, has seen continsuous rise in its production. Its production has increased from 2.57 million tons in 1980-81 to 18.50 million tons in 2009-10. The major reasons attributed for enormous rise in production are consistent efforts taken by the government to cultivation palm plants, its multi-usages apart from cooking and recently its importance as bio-fuel. Being a perennial crop, palm oil starts bearing fruits from 30 months after its planting and continues to yield till 20-30 years. Global Crude Palm Oil production has been increasing continuously from 1980-81. The production has increased manifold from 4.90 million tons in 1980-81 to 44.95 million tons in 2009-10. Malaysia and Indonesia are the two largest Crude Palm Oil producers. Till 2003-04 Malaysia was the largest palm oil producing country in the world but from 2003-04 onwards Indonesia took over first position by surpassing Malaysia and maintaining first place since then. Figure 24: CPO production: Indonesia Vs. Malaysia Along with Malaysia, production in Indonesia also increased manifold since 1980-81. Recently, Indonesia has surpassed the Malaysia in production. Its production increased from a mere 0.75 million tons in 1980-81 to 20.75 million tons in 2009-10 registering a Compounded Annual Growth Rate of 12.80%. Recently, Indonesia has emerged as one of the biggest competitor to Malaysia in production of palm oil. Malaysia is the largest palm oil exporter in the Asian continent followed by Indonesia. Since domestic consumption is less it earns large chunk of foreign exchange by exporting huge quantities of palm products. Major destination for Malaysian palm oil export is China having largest share of 43% followed by Indonesia (16%) and Pakistan (12%). It exports only 6% of total shipment to India. 35

Indian Scenario India is one of the largest vegetable oil importers in the Asian continent followed by China. Annually India imports more than 5 million tons of different edible oils. Crude Palm Oil is the single largest commodity of India s edible oil import basket. Figure 26: CPO imports India Source: SEA and KCTL Research Price Analysis Bursa Malaysian Derivatives (BMD) Exchange is considered as global benchmark market for palm oil pricing across the globe. Since palm oil is close substitute of soy oil, its pricing is largely influenced by price movement of soy oil on Chicago Board of Trade world s largest benchmark agri commodity exchange. On domestic front, pricing of palm oil depends upon FOB prices of Indonesia because large part of India s palm oil import is from Indonesia, government policy of India and Indonesia, freight charges etc. India is the second largest importer of CPO after China. In the current oil year 2009-10, India imported 4.1 million tons (Nov 09-Aug 10) of palm oil. Normally, CPO is being used of vanaspati making and other industrial purposes. India s CPO futures prices movement is mostly derived from Malaysian market and other edible oils especially soy oil. Indian CPO futures are on a consolidation phase. Higher import of CPO into the country due to nil import duty is trying to weigh on the market while on other hand firm Malaysian market is holding Indian price from a steep fall. We can expect a positive trend for BMD palm oil futures on reports of strong export demand. MCX CPO futures are likely to trade lower in the short term moving in sync with other edible oil prices, which are likely to decline on commencement of fresh arrivals. In the long term, MCX futures are likely to move in unison with firm overseas market. 36

Technical analysis As per the elliot wave analysis BMD CPO futures saw a complex correction by moving in a consolidation phase. As of now market completed wave W and wave X and currently wave Y is in progress in the form of five wave sequence. The leg of wave d is in progress, followed by wave e at 2460 and the rally from there is expected if market fails to create new low. Only on breach of the strong resistance at 2860 levels would signal wave 1 is in progress for a gain to 3052 then 3234 levels (projection levels for 23.6% and 38.2% of the range 1370-2899). We expect market to see a lower correction before resuming its new rally, which can lead the prices testing 3052/3234 levels. Figure 27: BMD Palm oil futures prices movement Source: Bloomberg and KCTL Research Commodity S2 S1 R1 R2 Recommendation BMD CPO (MYR/T) 2120 2460 2860 3230 Buy at 2500-2550 TP 2800-3050 SL 2300 MCX CPO (`/10 kg) 360 400 430 460 Buy at 395-410 TP 450 SL 370 Disclaimer The report contains the opinions of the author, which are not to be construed as investment advices. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above mentioned opinions are based on the information which is believed to be accurate and no assurance can be given for the accuracy of these information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading. Commodity derivatives trading involve substantial risk. The valuation of underlying may fluctuate, and as a result, clients may lose entire of their original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by or from Karvy Comtrade that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided on this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management or investment advisory services. The reports are only for information purpose and not to be construed as investment advices. For Detailed disclaimer please go to following URL's: http://www.karvycomtrade.com/disclaimer.asp http://www.karvycomtrade.com/riskdisclaimer.asp 37

KARVY s VIEW ON OIL MARKET IN MEDIA 38

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