Introduction

Soybean is the world's most cultivated oilseed. The soybean is often called the miracle crop. It is the world's foremost provider of protein and oil. The bushy, green soybean plant is a legume related to clover, peas, and alfalfa. More soybeans are grown in the U.S. than anywhere else in the world. Soybeans contain around 18% oil and 45% of proteins.

The primary use of whole soybeans and protein from the soybean meal is to provide a low-cost, high protein feed ingredient for fish, poultry, swine, cattle, and other animals. Other uses range from tofu and soy sauce, to soy flour used in baked goods and high fiber breads. In addition, the protein is used in industrial products such as plastics, wood adhesives, and textile fibers.

Soybean oil is the leading vegetable oil in the world. Other uses of soybean oil range from margarine to salad dressing and mayonnaise. Examples of industrial applications include the use of the oil as a carrier in inks and paints. Soybean oil also provides an environmentally friendly fuel.

Economic Importance

About 98 percent of soybean meal is used as a feed ingredient in mixed rations for poultry, hogs, and beef and dairy cattle. The remainder is used for human food or industrial products. High-protein (48%) soybean meal is used as a starter ration and high-performance feed. A lower-protein soybean meal (44 percent) also may be produced by adding the high-fiber hulls for use in bulky feeds, or as a carrier for molasses and other ingredients.

Soybean meal is the most valuable component obtained from processing the soybean, ranging from 50 to 75 % of its value (depending on relative prices of soybean oil and meal). By far, soybean meal is the world's most important protein feed, accounting for nearly 65 % of world supplies. Livestock feeds account for 98 % of soybean meal consumption, with the remainder used in human foods such as bakery ingredients and meat substitutes.

Soybean meal is considered a premium product because of its high digestibility, high energy content and consistency. Properly processed dehulled soybean meal is an excellent source of protein and is used extensively in feed for swine, beef and dairy cattle, poultry, and aquaculture.

Soybean meal is the most common plant protein supplement. It is the remaining product at the end of the oil extraction process from soybeans. Oil can be extracted mechanically or via the utilization of solvents. The use of solvents is the most efficient and common technique resulting in a meal that contains 48% crude protein. Typically, millfeed (ground soy-hulls) will be blended with this meal to produce the more common 44% crude protein soybean meal. There is also an expeller or old processed soybean meal that contains 42% crude protein and 5% oil.

Global Scenario

Soybean is the most popular oilseed of the world. It is estimated that the total production in 2003-04 was around 187 million tons. The production has risen over the last 2 decades at a quick pace to achieve this level. USA, Brazil, Argentina, China and India are the world's major producers, with US being the world's major producer.

United States (33-35 million tons), China (20-22 million tons), Brazil (20-22 million tons), Argentina (18-21 million tons), India (3-5 million tons) are the major producers of soymeal in the world. Increased meat consumption by the world has resulted in increasing trade in soymeal, which is one of the major protein sources for animal feeds. As a result, soymeal is one of the most traded agricultural commodities.

Soymeal is the major protein source used by the animal feed industry as it has the largest protein content (48%) and because the most largely available. In addition, it is one of the most complete plant protein providing almost all the necessary amino acids. Through animal proteins are available like bone meal, which are more nutritious these are not permitted in most countries. In 2003-04, soymeal is estimated to have accounted for around 68% of the world's protein meal requirements.

Exports and Imports

The annual global trade in soymeal is around 45-48 million tons. The major exporters are Argentina (19-20 million tons), Brazil (14-15 million tons), USA (4-6 million tons), India (3-4 million tons) and EU (2 million tons). The major importers are EU(20-22 million tons), Central Europe (3.5 million tons), Thailand (2 million tons), South Korea (1.5 million tons), Indonesia (1.5-2 million tons), Japan (1-1.5 million tons), Philippines (1-1.5 million tons) and Canada (1-1.5 million tons.

Indian Scenario

Production

Soybean is the most popular oilseed in the currently after groundnut and soymeal is the largest produced oilmeal in the country.

The second advance estimates of the Ministry of Agriculture pegs the 2003-04 (Oct- Sep), soybean production at 7.61 million tons. At the same time, the trade estimates peg the production at 6.8 million tons. Around 7-10 lakhs is held back to be used as seed for the next season and the remaining arrives in the market. India produces soybean only in the khariff season and the soybean reaches the market from September, with October- November being the peak arrival period. The initial produce has high moisture content and is dried for 1-2 weeks, before the crushing and usually the crushing begins by mid- October. The peak period of crushing extends till December.

In 2003-04 (Apr-Mar), India is estimated to have crushed 51.64 lakh tons of soybeans to produce 42.35 lakh tons of soymeal and 9.3 lakh tons of soyoil. India's production of soymeal has been increasing, keeping in tandem with the production of beans. Madhya Pradesh, Maharashtra, Rajasthan are the major producers of soybean in India. While MP accounts for around 60% of the production, Maharashtra accounts for around 25%, Rajasthan accounts for 10% and others account for the remaining.

Exports and Imports

India has turned into one of the major exporters of soymeal to the Asian countries. South Korea, Thailand, Philippines, Japan are some of the major importers of soymeal from the country. India typically exports around 65% of the country's soymeal production currently. This leaves around 1-2 million tons for the consumption of the domestic poultry and cattle feed industry. India, does not import soymeal to meet the requirements of the domestic feed industry, as the price equation inclusive of transports does not work in favour of imports.

Indian soymeal is non-GMO (Genetically Modified Organism) soymeal and is preferred by the animal feed manufacturers in Asia and Europe as a result India soymeal is priced at a premium over soymeal from US and South American countries. Still, importing from India works out to be cheaper for Southeast Asian countries due to lesser transportation charges.

Soymeal accounted for 84% of the total edible oilseed meal exports from the country. Rapeseed meal and groundnut meal accounted for the remaining 13% and 3% exports respectively.

Market Structure

Soybean that is brought into the primary markets by the farmers is purchased by the crushers themselves or by the stockists. The traders usually enter into forward contract with the importers for export of soymeal. The prices are highly volatile and follow the international prices very closely. The Chicago Board of Trade (CBOT), is the main reference price for the traders of this product. Indore, Ujjain, Dewas, Bhopal, Kota are some of the major trading centers of soybean. Indore is the major trading center for meal and oil. This area also has an active futures market.

Price Volatility

Correlation in monthly prices of soymeal at CBOT and Indian FAS/FOB prices is 0.95.

Suitability for Futures Trading

The commodity has a very active cash and forward marke. The production highly fluctuates between the years as a result of its dependence on monsoon. Internationally, too the production displays high fluctuation between years due to weather and disease effects. The commodity has demand from both the domestic and international market. The prices are highly correlated to the international prices and display the high volatility exhibited there. The meal is mainly used by the poultry and cattle feed manufactures. As a result all the factors that disturb the demand supply balance in the feed industry too affects the meal prices. In addition, soymeal is also largely homogenous.

Projected Turnover of Soymeal Futures in India

India's production of soymeal has averaged at around 3.5 million tons recently. It is assumed that, the production of soymeal may remain constant over next five years for the sake of convenient calculation and that the prices may increase by Rs. 630 per ton as the rate of inflation in the country is around 4-5%.

Projections of Production of Soymeal

In the developed markets, futures trading is normally 10 times that of the production. Assuming that 50% of the available quantity in respect of soymeal will be dealt with in futures market and taking a conservative estimate, the multiplier factor taken for futures trading is as under:

Accordingly, futures trading in soymeal projected for the next five years as under:

MCX would make available soymeal futures at the national level so that, not just a particular location or few segment of the trade have access, but all the interested individuals across the country can trade.