Potato futures hit 4% lower circuit on regulatory action, profit booking

Potato futures, which saw a sharp uptrend in recent weeks, today hit the 4 per cent lower circuit across National Commodity and Derivatives Exchange and MCX mainly due to regulatory action and profit booking, analysts said.

Potato futures for April delivery rose by over 40 per cent over a month's period to Rs 1,051 for 100 kg on March 14. Subsequently prices started to decline and today all potato contracts hit the 4 per cent lower price limit.

Potato futures for April delivery on NCDEX were locked at the lower circuit at Rs 923.9 for 100 kg today.

The sharp rise in potato futures prompted exchanges to impose 10 per cent additional margins on both the long and the short side. These margins come into effect on Wednesday. The rise in potato prices would have a direct impact on the country's inflation rate.

DECLINE IN OUTPUT

Reports that output of potato would be lower in 2011-12 led to the sharp rise in prices during February and early March. But despite the decline in output as feared by the trade and Government officials, supplies would be plenty, said Ms Vedika Narvekar, Senior Analyst, Angel Commodities.

She was referring to National Horticultural Research and Development Foundation report on potato output in 2011-12. Initially, NHRDF said output would be at 43.6 million tonnes compared with 40 million tonnes in the previous year.

But late blight disease due to strong winter is said to have impacted the crop in Uttar Pradesh, the country's leading potato producer and in West Bengal, the second leading producer of the commodity.

“Even if output was lower by 10 per cent that would mean 36 million tonnes of crop. Already, cold storages are full to the extent of 80-85 per cent,” Ms Narvekar said.

ARRIVAL PRESSURE

After a sharp rise in prices through February and until mid-March, arrival pressure build up leading to the recent decline in rates.

“The last 3-4 days also saw some profit booking in potato futures as traders were unwinding their positions after going long,” said Mr Dharmesh Jain, analyst, Ventura Commodities.

The imposition of margins would also prompt further unwinding of positions, he said. The demand for potato is expected to pick up with the onset of festivals, he said.

Overall the trend in potato futures is bearish, said Mr Sagar Doshi, technical analyst at AnandRathi Commodities. He expects April NCDEX contract to find support at Rs 850 for 100 kg and then at Rs 800.

Potato prices are likely to stay weak going forward as availability would outpace consumption demand of around 28-30 million tonnes, Angel Commodities said in its weekly report.

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