The Hindu Business Line : Fundamentals seen behind fall in price of pulses

Low morale
Prices were declining because the market has been assured of good supply in view of good crop in Andhra Pradesh and Myanmar.
Tur is set to rule firm this year as the crop in main growing regions of Gulbarga and Latur is projected to decline by 30-40 per cent.

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Chennai/Mumbai Feb. 23 Prices of urad and tur have declined since the Centre banned futures trading in the pulses but traders and analysts are unanimous in their views that the decline has been mainly due to market fundamentals. On the other hand, commodity exchanges are reporting fall in confidence level of investors in view of the ban and other measures taken to curb rising inflation.

According to trade sources, urad prices in the terminal markets have declined by Rs 500 a quintal to around Rs 2,850 primarily on "perceived increase in production."

Declining Prices

However, prices in non-regional markets have, in fact, shown a rising trend. For example, in Hyderabad, urad prices are currently ruling at Rs 4,100 for superior variety against the pre-future ban price of Rs 3,850. According to NCDEX officials, spot prices for urad have declined from Rs 3,550 when futures were de-listed to Rs 3,300 now.

But the officials point out to the trend that prevailed in the market when the futures were banned by the Centre. On January 23, the closing price for February contract was Rs 3,234, while for March it was Rs 3,145. May contracts, on the other hand, closed at Rs 2,939. In contrast, spot prices ruled at Rs 3,550 that day, the exchange officials point out.

"As per the feedback from market, the decline in prices has nothing to do with the ban. Going by the closing price for March and May contracts, it is clear that the market had begun to take into account the arrivals from Andhra Pradesh and Myanmar," the officials said.

Good Supply

A South-based importer said prices were declining because the market has been assured of good supply in view of good crop in Andhra Pradesh and Myanmar. "Crop from the rain-fed areas in Andhra Pradesh have begun to arrive and they are higher this time," the exporter said. "In view of the assured supply, buyers have decided to go on hand-to-mouth existence. Only if the market perceives a shortage, will buyers go in for stocking," he said.

"There has been a wrong perception of the futures market. The futures do not rise everyday as people think. Of the possible 25 days of trading, the prices decline at least on 20 days," he said. The trade is of the view that ultimately, it will be the farmers who would be affected, though the traders themselves have been deprived of an opportunity to hedge their risks.

"Today's farmer is well informed. Therefore, it is not as if some speculators are gaining. On the other hand, traders run the risk of prices declining before the contracted consignments reach their hands," the importer said.

On the other hand, prices of tur have slipped only by a marginal Rs 37 a quintal. When the ban came into effect, February contracts for tur closed at Rs 2,281 a quintal, while March was quoted at Rs 2,477 and May at Rs 2,563. Spot prices ruled at Rs 2,337 and currently, they are quoted at Rs 2,300.

Tackling Inflation

Tur is set to rule firm this year as the crop in main growing regions of Gulbarga in Karnataka and Latur in Maharashtra is projected to decline by 30-40 per cent. Production in Myanmar is also expected to be 15 per cent less than last year.

According to officials manning various commodity exchanges, the morale is at its lowest. "The Centre could have tackled inflation by attending to the supply problems rather than attacking futures. The derivatives market has been mirroring the upcoming situation rather correctly. For example, wheat contracts began to show the market's perception of problems in the crop as early as December 2005," they said.

Also, the hike in margins has only resulted in small players being marginalised, leaving it free for the bigger players, who are capable of manipulating the market, the officials said. "No small player can pay margins of 30 to 50 per cent imposed on some of the agricultural products. This has now left the trade in the hands of very few people," they said.