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NCDEX Futures continues to offer hedging options

Soybean

It has been a truly impressive year for the entire soybean value chain, including our farmers. In the case of soy, prices have exceeded the 10,000 mark for the first time. Nobody would have thought that prices would move to such a level, especially in the first half of 2020, when there was complete uncertainty about the demand outlook for the various commodities and assets in the face of the Corona outbreak.

Prices were close to the 3200 level in March 2020 – prices have tripled since then. But is this upward rally justified, or is it the result of manipulation and speculation. Well, we often hear dissatisfaction and doubts expressed about this. However, the price increase is justified given the changes in demand and supply. Indeed, given soybean oil prices, the upside in soybeans was limited until February. In fact, soybean oil prices are still below the 1470-1480 May high, but May soybeans failed to stay above the 8000 mark. Only after the month of June did soybean prices continue to skyrocket.

The strong trend in soy after the first quarter of 2020 is the strong trend in soy after the first quarter of 2020. The strong trend in soy after the first quarter of 2020 has been marked by a sharp rise in demand for loosening the lockdown restrictions / reducing corona risks, narrowing inventories of important vegetable oils including soybean oil, as well as lower acreage for soy and stable demand for soy products the edible oil markets such as soybean oil, palm oil and sunflower oil was an additional supportive factor. Inventories had already started to run out in early 2021, and with 20 lakh tons of soybean flour exported this season, soybean stocks are largely exhausted. In India, the late monsoons are a cause for concern and soybean cultivation activity is being adversely affected by the lack of rainfall in central India. All in all, the upward rally in soy appears to be in line with fundamentals.

This year was very useful for the participants in the value chain such as the feed manufacturers to use the futures market to hedge their price risk. The feed producers have been exposed to the risk of rising prices, so a few months ago, when prices were relatively cheaper than current offerings, they could easily take long positions. Often times the futures were discounted by the spot market, so buying the futures contract during this period would have reduced their cost significantly.

There should always be such opportunities for processing companies in the future, including farmers and traders. Traders can sell on the futures markets when the futures contracts are above their cost. In the case of farmers, they can sell the November or December contract, which is the future contract for the new season’s soybeans. Since after 3-4 months there is uncertainty about the price outlook, they can sell these futures and minimize the risk by fixing their prices. It will be better for the feed manufacturers to buy the contracts if they are well below the spot market offers.

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