Raw Input. Why castorseed could still slip

Castorseed prices have traded in the ₹3,600-4,200 per quintal range (basis Deesa NCDEX) so far in 2015. As this report is being written, the prices are at their highest in the season. Castor oil exports are going to be at a record and meal exports are also close to all-time highs. One question probably playing on every one’s mind is whether we will see a repeat of November-December 2014.

During the same period in 2014, castor prices started rallying sharply as everyone believed the market balance to be very tight and the scenario to be very bullish. But then, the unexpected happened. Very high stocks were delivered on NCDEX at a very rapid pace, catching everyone unawares. Towards the end of 2014, the opening stocks for 2015 were believed to be 3.5 lakh tonnes. This would have been the lowest opening stock since 2010. But by January 2015, the whole scenario had changed and another 3.5 lakh tonnes of stocks had emerged out of nowhere. Around 4.40 lakh tonnes were available in the NCDEX warehouses. Prices crashed by 25 per cent in next two months as arrivals also built up.

Prices thereafter remained range-bound until this October due to a comfortable supply situation. The weak rupee and lower prices led to healthy demand. Thus seed prices inched higher towards ₹4,200 per quintal, tracking good export demand to China and EU in the latter half of the year.

Low prices would have ordinarily shifted farmers away from castorseed during this sowing season. But delayed rains in the main castor-growing state of Gujarat left farmers with no choice but to move to the castor crop. Rains in the last week of August resulted in a sharp jump in acreage under this crop. As a result, castorseed acreage is expected to increase by 5 per cent mainly in Gujarat and Rajasthan. However, scanty rainfall during July in Andhra Pradesh has reduced acreage in that State. Overall, production for 2015/16 is pegged at 13.6 lakh tonnes, higher by 3.1 per cent over last five year average yields. Due to the good spell of rains in both August and September, the production numbers have upside potential in Gujarat.

Good castor oil export demand from China, EU and the US has supported seed prices in the physical markets too. The annual exports of castor oil in 2015 are expected to be a record 5 lakh tonnes, up by 9.4 per cent due to increased offtake from China.

Sebacic acid is a bi-product of the castor oil which is used to produce 2 Octanol and Glycerine. Usually China imports castor oil and converts it into sebacic acid and exports to EU and US. Higher realisations for sebacic acid due to weakening of yuan are encouraging Chinese millers to import more castor oil this season.

Further, an empty pipeline due to lower imports during the last two seasons has led to higher imports this season too. China has imported 1.7 lakh tonnes of oil so far this year (January-October, 2015) against 1.5 lakh tonnes imported last year (January-December 2014).

Annual castormeal exports are also expected to be near record levels. However, in the month of October, castor meal prices have fallen by 10 per cent due to lower demand from South Korea. This is for the first time in the season that castor meal prices are ruling below the last year levels. This has increased the crushing disparity and this will limit any sharp upside to castorseed prices.

Castorseed prices have made a high of ₹4,205 per quintal from the seasonal low of ₹3,560 per quintal in February 2015.

It is expected that prices will trade in the range of ₹4,000-4,300 per quintal before the new crop arrivals pick up in February 2016.

Prices above ₹4,300 per quintal will attract selling from stockists who accumulated it at around ₹3,700-3,900 in the April-July period.

The next season’s crop is expected to be higher with very comfortable opening stocks. This should see the new crop prices go lower at harvest time, in line with the seasonal pattern. But the tight balance sheet will not allow prices to fall towards seasonal lows seen in 2015 and support will emerge around ₹3,700-3,800 a quintal.

The writer is VP, Agri Value Chain, Edelweiss Financial

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