Mustard (rapeseed) prices have surged about 25 per cent since March 2016 on anticipation of strong winter demand, as supplies are going to be depleted in the coming months.

On the National Commodity and Derivatives Exchange (NCDEX), prices have increased from March lows of ₹3,800 per quintal to ₹4,800 in June.

There is speculation of a further rise in prices amid strong domestic consumption and a lower production outlook. However, throughout the planting and growing season, prices were on a downtrend, slipping to ₹3,800 in March 2016 from ₹5,000 in October 2015 due to reports of favourable weather conditions and higher acreage in Rajasthan and Uttar Pradesh.

Mustard seed prices started to improve in March on reports of a forecast of unseasonal rains in the North-West region coupled with good domestic demand due to anticipation of lower-than-expected production impacting arrivals. The peak arrivals of mustard seed are usually in March, April and May. Rajasthan is the largest producing State followed by Uttar Pradesh and Madhya Pradesh.

Marching forth

During the current season, arrivals in March across all spot markets in the country increased by about 41 per cent to over 9 lakh tonnes (lt) compared to last year, according to Agmarknet data.

However, arrivals slowed in the next two months due to unfavourable weather in April.

The combined arrivals in April and May were down by more than 28 per cent from the previous year. Total arrivals in the first three months of the peak season were the same as that of last year but higher domestic meal demand aided the rise.

High domestic demand

The domestic demand for mustard meal and oil is expected to increase during the current marketing year (October 2015-September 2016).

According to the latest USDA report, mustard meal production in the country is set to increase by 64 per cent to 27 lakh tonnes (lt) in 2015-16 compared to 16.4 lt in the previous year. Similarly, domestic consumption of oil is forecast to increase by 4.8 per cent to 21.8 lt in 2015-16 and 16.3 per cent to 25.4 lt in 2016-17.

Imports rising

Mustard oil imports during the first six months of the current oil year (November-October) until April decreased by about one-fourth to 1,53,206 tonnes compared to last year’s 2,00,000 tonnes.

However, imports increased by more than 50 per cent in March and April to 77,950 tonnes compared to last year’s 51,810 tonnes during the same period.

This increase in imports is an indication that there will be a shortage of mustard seed for domestic crushing as the new season’s crop will only arrive in March next year.

Outlook

With depleting stocks and higher domestic demand, we expect prices to touch ₹5,300 per quintal (CMP: ₹4,800) over a two-month period.

The writer is Associate Director – Commodities & Currencies Business, Equity Research & Advisory – Angel Broking. Views are personal.

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