Reading the Future

Here is what advance production estimates foretell about prices of farm commodities traded on exchanges
Rahul Oberoi/Money Today        Print Edition: April 2013

This year's advance estimates of farm output give some interesting insights into the way prices are expected to move on exchanges in the coming few months.

The estimates, for crop year 2012-13 (June-July), released by the agriculture ministry, show that supply of wheat, maize and sugarcane is likely to fall, putting upward pressure on prices. However, production of pulses, soyabean and mustard seed is likely to rise.

The figures show that India is likely to produce 250.14 million tonnes (mt) foodgrain in 2012-13, which is 3.6 per cent less than the final estimate of 259.32 mt for 2011-12. The reason is seven million tonnes lower kharif production due to erratic monsoon.


We talked to experts to know what these numbers mean for prices of farm commodities traded on exchanges.

Chana (chickpea):

The price of chana fell 16 per cent to Rs 3,290 a quintal in January and February due to expectation of a production jump. The government has projected a 2.87 per cent rise in output of pulses in 2012-13.

"Increase in acreage by five lakh hectares to 95 lakh hectares means there is hope of a bumper crop. This, and cheaper imports from Australia, Canada and Tanzania, has put pressure on prices since the start of 2013," says Ashok Mittal, chief executive officer, Emkay Commotrade.

According to the advance estimate, a 6 per cent rise in area under the crop is expected to take production to a record 8.57 mt, 11 per cent more than last year. Market sources say India imported 4-4.5 lakh tonnes chana between October 2012 and January this year as against a target of five lakh tonnes for the entire financial year. India consumes 7.5-8.5 mt chana a year.

Mittal of Emkay says arrivals in Madhya Pradesh and Delhi are expected to increase further in the next few weeks. So, we may see a further fall of Rs 100-150 per quintal subject to good quality arrivals in the near term. The medium-term outlook for chana is bright as demand is expected to rise. "Technically, till the market holds above Rs 2,900 a quintal, investors can enter longs near Rs 3,200 for a target of Rs 3,700. By December 2013, we expect the price to touch Rs 4,200 a quintal, depending upon monsoon and acreage," he says.


Wheat:

After six consecutive years of new records, production may fall 2.7 per cent to 92.3 mt this year. This, and higher exports, led to a 9 per cent price rise in January and February to Rs 1,680 per quintal.

If you plan to invest in wheat in 2013, wait for some time, say experts. "Rain in January-end and early February in Punjab and Haryana has benefited the crop. However, weather may still play spoilsport. It's too early to predict the output and build positions on the basis of the latest projections," says Naveen Mathur, associate director, commodities & currencies, Angel Broking.

India exported 38 lakh tonnes wheat in the first 10 months of 2012-13. But prices in export markets are not very high at the moment. This, along with huge existing stocks, may ensure price stability this year.

"We expect prices to remain under pressure during the harvesting period from March to May," says Mathur.

The government has fixed the minimum support price (MSP) for wheat at Rs 1,350 a quintal and is expected to procure a record 44 mt compared with 38.14 mt in 2011-12. Prices, say experts, may not fall below the MSP.

"Lower prices may attract overseas buyers, giving a boost to exports. So, prices may start recovering from May. But the extent of the rise may depend upon international prices. If the demand-supply situation is normal, wheat may trade near Rs 1,350 and Rs 1,690 levels in 2013," says Mathur.


Mustard seed:

Mustard seed, also known as rapeseed and canola, is the third biggest source of vegetable oil in the world after soyabean oil and palm oil.

Quote

Despite good output, low mustard seed stocks have moderated the rise in supply. Investors can expect long-term gains.

SUSHIL SINHA

Business Head, Karvy Comtrade

Production is likely to rise 11.5 per cent this crop year. The Solvent Extractors' Association of India says production is likely to rise 20 per cent to 7.26 mt this year as against 6.03 mt last year.

Experts say supply has been dwindling due to lower production in 2011-12 when the output of rapeseed and mustard seed fell 19 per cent from 8.18 mt in 2010-11. A rise in production this year and lower carryover stocks may result in a moderate rise in supply. A rise in demand for meal and oil may boost prices though.

"Despite higher output, low stocks at the start of the year have moderated the rise in supply. However, investors must keep buying for long-term gains. Higher purchases by government agencies can support prices. We expect the ongoing correction to end in the near term. One can take position at Rs 3,340-3,350 a quintal for a target of Rs 3,700, putting a stop-loss below Rs 3,250," says Sushil Sinha, business head, commodity, Karvy Comtrade.

On February 28, mustard seed futures were at Rs 3,527 a quintal on the National Commodity and Derivatives Exchange (NCDEX).


Sugar:

Production of sugarcane is likely to fall over 7 per cent this year from 361 mt in 2011-12. India has had a surplus for three consecutive years now. The country, say market watchers, follows a seven-year cycle; production rises for four-five years and then falls sharply for the next couple of years. We are in the fifth year of high output with a surplus of eight-nine mt.

Sugar output may fall in 2012-13. Last year, production was 26.3 mt. This year, it is expected to fall 10 per cent to 23.5 mt, according to the government's estimate. The estimate of the Indian Sugar Manufacturers' Association is 24.5 mt while some private studies are expecting that the output will breach the 25-mt mark.

On account of higher-thanexpected production in Brazil, the world's largest producer, prices fell 2.4 per cent to Rs 3,175 per quintal in the first two months of 2013. According to experts, at 37.5 mt, Brazil's production is 3.5 per cent higher year-on-year, the second largest in its history.

"Prices should go up by 12-15 per cent till the end of 2013. The main reason is expectation of a fall in acreage next year and low current prices," says Dharmesh Bhatia, associate vice president, research, Kotak Commodities. Maize: It is the third cereal crop in India after rice and wheat in terms of acreage and production (21.2 mt covering 8.5 million hectares).

The price of Maize Nizamabad traded on the NCDEX has fallen sharply of late. For example, the March futures have fallen from Rs 1,440 a quintal to Rs 1,312 in the first two months of the year.

"This was primarily due to subdued demand from poultry and industrial sectors along with high moisture content (18-19 per cent) in this year's crop," says Mayur Joshi, vice president, Anand Rathi Commodities. The acceptable moisture level is 13 per cent. More moisture increases drying and, hence, the production cost.

The ministry has estimated a 3.22 per cent fall in production in 2012-13. Experts say this won't have much impact on prices. "In view of poor demand abroad and increase in global production, this small fall in production may not trigger any sharp rise in prices. Till last month, export orders were thin and are likely to pick up only in April-May when the new crop arrives in the market," says Vibhu Ratandhara, assistant vice president, commodity, Bonanza Portfolio.

Experts say India has started offering new-crop corn for $298-300 a tonne, including cost and freight, for shipments to Southeast Asia in April and May, as compared with the $314-315 a tonne being quoted for the produce from Argentina. Prices will rise only if big export deals materialise. Otherwise, supply is likely to remain high for at least the next six-eight weeks.

"Record output in the US and normal winter crop in India mean prices are likely to remain under pressure for at least the next two-three months. The next stage will depend on the monsoon and how much area is covered by the crop. The Nizamabad price is seen at Rs 1,290-1,270 a quintal as against the current price of Rs 1,320-1,325," says Ratandhara of Bonanza.


Soyabean:

According to the second advance estimates, the production of soyabean is expected to rise 6.14 per cent in 2012-13. Market experts are not upbeat for the future.

Quote

Domestic demand for soyabean continues to be good due to falling arrivals and robust export demand for soyameal.

CP KRISHNAN

Whole Time Director, Geojit Comtrade

"Prices are likely to come down to possibly in the range of Rs 3,100-3,000 a quintal this year due to higher production and edible oil imports," says CP Krishnan, whole time director, Geojit Comtrade. On February 28, soyabean was trading at Rs 3,315 per quintal on the NCDEX.

Soybean accounts for 40 per cent of India's total oilseed production. Data from the Solvents Extractors' Association of India show that India imported 1.13 mt edible oil in January and 2.69 mt between November 2012 and January this year compared with 2.13 mt a year ago.

The Central Organisation for Oil Industry & Trade has pegged the country's kharif soybean output at 11.5 mt. The advance estimate, however, puts it much higher at 12.96 mt, while the Soybean Processors' Association of India has pegged it at 12.68 mt.

"Domestic demand for soyabean continues to be good due to falling primary arrivals and robust export demand for soyameal. Arrivals in Madhya Pradesh were 65,000-80,000 bags of 100 kg each. Traders and farmers have been postponing selling due to demand for Indian soyameal from Iran and other Asian countries," says Krishnan.



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