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 India's Vegetable Oil Imports May Fall as Rain Boosts Crops

24/4/07 (Bloomberg) -- India, the world's second-biggest vegetable oil buyer after China, may cut imports next year because monsoon rains are forecast to be sufficient to boost the domestic oilseed harvest.

Vegetable oil imports may drop 10 percent in the 12 months starting in November, M. Somasekhar, an analyst at TransGraph Consulting Pvt., which advises traders, said in a phone interview from Hyderabad yesterday. The monsoon is expected to be normal, with the fate of crops depending largely on rainfall distribution.

Agriculture accounts for a fifth of India's $854 billion economy and directly employs 234 million of the country's 1.2 billion people. Reduced edible oil imports may cool prices of palm oil in Malaysia and of competing soybean oil in Chicago, which have risen by 46 percent and 30 percent, respectively, in the past year on demand for cooking and for alternative fuels.

``Rising prices and expectation of normal rainfall will definitely boost oilseed planting,'' Bharath K. Rekapalli, director of Global Financial Markets, a trading and research company, said by phone from the southern city of Hyderabad.

The June-to-September rainy season will be 95 percent of the average reported between 1941 and 1990, a level considered normal, India's Meteorological Department said on April 19. The rains water 60 percent of the crop land.

``If the forecast turned out to be a reality we can see higher output of soybeans and peanut,'' Somasekhar said. ``This will have a negative impact on domestic prices.''

India's vegetable oil imports may fall to as low as 5.4 million metric tons in the 12 months starting in November from an estimated 6 million tons this year, Somasekhar said.

Rainfall Distribution

India's weather department reported rains were 100 percent of the long-term average last year. Still, agricultural growth slowed to 2.7 percent in the year ended March 31 from 6 percent in the previous year as uneven distribution of rainfall hurt production of monsoon oilseeds and coarse cereals.

``It's not only the quantum but the distribution of rainfall which is important,'' B.V. Mehta, executive director of the Solvent Extractors Association of India, representing 800 oilseed processors, said in a phone interview from Mumbai yesterday.

``We are already in a shortage of oilseeds. A good monsoon will boost overall agriculture output including oilseeds and will soften prices of food products in the country,'' he said.

Sowing for monsoon oilseeds, which account for 60 percent of the country's total oilseed output, starts in June. Harvesting starts in middle of September and continues till end of November.

``If the weather office had said rains will be bad, farmers would have thought twice before sowing the crop,'' Rekapalli of Global Financial Markets said. Normal rainfall will encourage farmers to sow more crops such as soybean and peanut, he added.

Palm Oil

India is likely to increase purchases of vegetable oil in the year ending October after uneven distribution of rainfall last year hurt production of oilseeds. The nation's oilseeds output is estimated to fall 17 percent to 23.26 million metric tons in the year ending June from a year earlier, the government said on April 4.

The country's purchases of palm oil, the biggest imported vegetable oil, increased 30 percent in the five months ended March 31 to 1.07 million tons from 827,795 tons a year earlier. Malaysia and Indonesia produce 85 percent of the world's palm oil.

Palm oil, typically used as cooking oil or in soaps, can be mixed with diesel to stretch fossil fuel supplies. Soybean oil is used in salad dressings as well as in making biodiesel.

Palm oil futures for delivery in July, traded on the Malaysia Derivatives Exchange in Kuala Lumpur, rose as much as 1 percent to 2,190 ringgit ($640) a ton today. It traded at 2,175 ringgit at 10:17 a.m. Mumbai time.

Soybean oil for July delivery rose as much as 0.2 percent to 32.79 cents a pound. It traded at 32.50 cents at 10:17 a.m. Mumbai time in Chicago Board of Trade after-hours electronic trading.

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