Castorseed may drop to ₹3,800/quintal

Castorseed prices mainly move on production estimates, export demand and strategies adopted by stockists. Over the last one month, prices have been volatile due to speculative activities by traders.

In fact, since last month, prices have moved in both directions. They moved up 18 per cent from ₹4,500 a quintal to ₹5,294, highest for the year.

They then dropped to ₹4,200 levels last week. Prices surged, after slipping to ₹3,800 levels in May, which is 18.6 per cent recovery.

Commodity prices have moved both ways, making it attractive for financial investors and speculators.

Of late, castorseed has been the most traded agricultural commodity by value and volume on the derivatives market (NCDEX) as there are limited government interventions in physical trade as well as exports.

Castor is sown mostly in Gujarat, Rajasthan and Andhra Pradesh after the onset of monsoon (July-August) and harvested in December-January. According to the Ministry of Agriculture, castor was sown on 10.36 lakh hectares during 2014-15 – up 5.3 per cent compared with the previous year.

In Gujarat, it was sown on 7.33 lh, some 18 per cent higher. Meanwhile, acreage in Rajasthan, Andhra Pradesh and Telangana was less compared with the previous year.

On the exports front, castor oil and its derivatives have dropped. During the 2014-15 marketing year (April-March), shipments of castor oil and meal dropped 15 per cent and 20 per cent respectively, Solvent Extractors’ Association of India data show.

The drop in castor oil exports was attributed to lower demand in China, which imports about 50 per cent of castor oil from India. Meanwhile, exports have increased month-on-month for castor derivatives.

After an incessant downfall in prices during January-May 2014, supported by record production last year, castorseed prices rebounded in December.

The commodity gained about 25 per cent despite weak fundamentals – higher carryover stocks, good sowing, favourable late showers and lower export demand.

The rise in castorseed prices was probably due to speculative moves by some strong financial investors.

According to trade sources, speculators have accumulated long positions in the futures and simultaneously bought stocks from physical markets.

They have planned to square-off their positions once prices rise to the desired levels before the start of the tender period on the future exchanges.

However, to curb the speculative activities and safeguard the interests of genuine participants, the exchange advanced the tender period and also levied pre-expiry margins for the active-January contract.

The extended time gave genuine market participants more time to arrange for delivery while the rising margin forced speculators to exit their positions.

In the process, prices have plunged by almost 15 per cent to ₹4,350/quintal. For the January series, a record delivery allocation of over 2 lakh tonnes was made by NCDEX.

Prices have dropped more than 10 per cent since the beginning of the year and new crop are due to arrive from next month. Peak arrivals will be in April and May.

Currently, the February contract on the NCDEX is trading around levels of ₹4,200, same as last years’ average January prices.

Further, according to trade sources, there are more than three lakh tonnes of carryover stocks, including the NCDEX stock and stockists’ holdings. This year’s production is estimated at 15-16 lakh tonnes.

Citing the record availability of castorseed and subdued castor oil export demand, we expect prices to dip in the coming months and touch ₹3,800 levels. Unless there is a robust export demand, prices will remain close to ₹4,000 a quintal levels.

The writer is Associate Director - Commodities & Currencies, Angel Commodities Broking Pvt. Ltd. Views are personal.

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