Archive for July 14th, 2010

SOYA CRUSH MARGIN……. “Fenced with negative wire”

The variable margin that processors derive from crushing soybeans to create byproducts is one of the most intriguing and challenging aspects of the entire soybean and product-value chain.

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A soybean crusher makes his profit from the difference between the cost of buying the beans and the price of selling the products. This is called the “crush margin”. Or in other words the price realization to the crushers from selling soy oil and soy meal after deducting soybean price)

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.Crushing blues………. “The implications”

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Very frequently, it is one of either the meal or the oil that drives crushing. For example if meal export prices are ruling firm, then the margin widens. During such times, plants crush in order to sell the meal.

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With the increase in crush margin, there will be a greater demand for soybeans for crushing resulting in gradually firming prices of soybean. Conversely, when the margin starts falling, one can expect weaker demand for soybean and softening in its prices.

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Under utilization of crushing capacity will always put pressure on margin. The miller crushes the seed and gets oil and meal which he sells in the market and receives income.

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If the money he gets greater than the cost of oilseed and crushing costs/overheads, he has a profit margin. The greater the margin, the greater is his incentive to crush the soybean at full capacity and sell the meal and oil & vice versa.

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Rule of Thumb: One metric tonne of soybean yields around 180 kg or 0.18 tonnes of soy oil (18% yield) and 820 kg or 0.82 tonnes (82% yield) of soymeal.

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Crush Margin (1 tonne of soybean): [(price of soy oil x 0.17) + (price of soy meal x 0.81)] – [price of soybean + processing cost]

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For example, as on July 6, 2010 the spot prices (NCDEX) of soybean, oil and meal in Indore were Rs 1,875.00 per quintal, Rs 437.50 per 10 kg and Rs 15,300 per tonne respectively. Converted into constant units of Rs/tonne, the prices are Rs 18,750, Rs 43,750 and Rs 15,300 per tonne respectively.

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Additional costs involved:

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·Processing charges roughly work out to Rs 750 per tonne to crush the seed and a further

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·Rs 500 per 180 kg as refining cost of oil. (The refining cost per tonne of crude soy oil is roughly Rs 2,500 and approximately 20% is factored for refining the 180 kg of oil derived from crushing 1 tonne of soybean.)

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It should be borne in mind that these numbers may vary marginally from year to year, depending on  growing conditions. As the prices of bean, oil and meal change on a daily basis, so too does the crush margin and this is watched closely by the industry.Thus, the crush margin would be [(43750*0.17 + 15300*0.81) – (18750+1250)] or Rs.-37.65 per tonne (NEGATIVE CRUSH MARGIN).

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In recent day’s i.e from the mid of June, the disparity of soy crushing, which is below crushing cost has consequently discouraged the soy crushers by calling off the operations of most of the crushing units in the key growing areas..

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The negative crushing margins faced by the industry have been due to a combination of high oilseed prices & drop in soybean meal supplies from India. According to the Solvent Extractors’ Association of India (SEA) the estimated 125 lakh tonnes of surplus oilseeds as on June 1 can potentially produce 40 lakh tonnes of edible oil, but cannot be crushed by the industry because of the disparity between crop and oil prices. The export of oilmeals for the month of June stood at 158,750 tons compared to 197,593 tons in June 2009 i.e. down by 20%. The overall export of oilmeals for April-June 2010 stood at 536,700 tons compared to 614,528 tons i.e. down by 13%. To sum up, the relationship between the soybean and its products, meal and oil, is operational, physiological and economic in nature. The value of the three components is tightly interlinked and often dynamic.

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