Rally in spices complex may continue

C. P. Krishnan | Updated on January 19, 2013 Published on January 19, 2013

A worker seen drying turmeric at a yard in Erode. — M. Govarthan   -  THE HINDU

The revival of spices complex has been a long pending in Kerala, but the recent bullish activities in spices are pointing that year 2013 could provide satisfactory return to farmers for their crops. The performance of spices complex during last year was more or less on the weaker side. Though, compared with 2011, the year 2012 did show significant gains for the spices complex.

Extending its previous year gains, coriander, turmeric and chilli futures are trading with positive bias nearing multi-month highs. Meanwhile, cardamom and jeera are trading steady with mild bullish outlook.

Coriander: Coriander is the top gainer in spice.

Since the first week of October 2012, coriander started its first leg of bullish move and within a period of three months, prices advanced 83 per cent.

Low temperate in major growing areas has damaged flowering and is likely to affect the output during the season and have been a key reason behind such sharp rally.

Due to low temperature, growers are concerned that production may decline to 60-80 lakh bags in the current season against 1.10 crore bags last year.

According to market sources, coriander acreage in the major production area of Rajasthan in the ongoing rabi season is likely to fall by 18-20 per cent compared with previous year.

In futures market, too, prices witnessed sharp rallies discounting news of imposing special margin on the long side on all running contract and yet to be launched contracts.

Turmeric: After posting consistent return so far this year, turmeric held steady near multi-month high levels. Strong fundamentals such as lower production, increased domestic and overseas demand supported prices. Significant fall in turmeric acreage is expected to drag production by 40 to 50 per cent compared with last year. Increase in open interest in futures platform also assisted bullish outlook for this commodity.

According to ongoing fundamentals, turmeric prices are expected to gain more once prices cross the immediate resistance of 7,000. Break of 7,000 could open gates for a push higher towards 9,000 followed by 11,000 levels later.

Chilli: Chilli traded steady near its 10-month high, continuing the bullish activities that started in the the last week of December. After last year’s feeble prices, farmers shifted to other crops reducing chilli’s acreage during the year. Poor rainfall throughout the season also supported prices to trade steady with positive sentiments.

The ongoing consolidation phase is likely to endure in near-term as reports of ample stocks are available in the market. Buyers are reluctant to purchase right now because of inferior quality and are waiting for quality to improve to restock the commodity. The total chilli production in the current year is estimated at 2.90-3 crore bags against 2.80 lakh bags last year.

However, the expected rise in demand by the arrival of better quality crop may limit prevailing selling pressure in the counter.

Looking ahead, prices are expected to trade higher as it is trading well above the resistance of 6,500.

Cardamom: Even though weak fundamentals prevail in the counter, prices are ruling well above Rs 1,000 a kg on the MCX futures platform. Feeble demand from the pan masala industry and reduced sales from northern States due to severe cold weather condition weighed on prices.

High carryover stocks, sluggish domestic and overseas demand and suitable weather condition in major growing areas dragged prices earlier. Looking ahead, prices are likely to consolidate inside 1,000-1,200 regions in the short-run, but possibly take prices higher till 1,500-1,800 regions later.

Pepper: Limited arrivals in the spot market despite peak production season and good domestic buying interest propped up pepper prices. Earlier, prices declined to a ten-month low at the end of December. Physical demand from Tamil Nadu and Karnataka on account of ‘Pongal’ and good offtake by pilgrims from neighbouring States on their return from Sabarimala pushed prices higher.

Meanwhile, concerns over the huge quantity of pepper locked up in exchange warehouses due to contamination, limited activities in futures market. At the same time, high disparity between futures and spot prices are raising uncertainty among traders.

Jeera: Jeera is the only commodity that has provided negative return so far during this year. Extending its early weakness jeera started the year with a negative sentiment and trading near to its lowest level since the first week of October. Prices dropped from a perk of Rs 14,845 a quintal to Rs 13,545 this period.

Sluggish demand from the stockists and overseas buyers coupled with slight rise in supply in major spot market are the other reason for the drop in prices.

(The author is Whole Time Director, Geojit Comtrade Ltd. The views are personal

Published on January 19, 2013
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