Commodity Call. Smooth run for castorseed

The castor seed futures contract traded on the National Commodity and Derivates Exchange (NCDEX) has surged over 7 per cent since July to ₹4,292 per quintal. An increase in domestic as well as export demand has helped the price rise. The data release from the Ministry of Agriculture showing slow progress in castorseed sowing this season has also lent support to prices.

According to the Agriculture Ministry, the area covered under castor as on August 27 stood at 7.63 lakh hectare. This is 10 per cent lower than the 8.53 lakh hectare sown over the same period last year. This is 26 per cent lower than the five-year average of 10.36 lakh hectares. The NCDEX castorseed futures contract surged 5 per cent in just a week following release of this data.

The recent rally in prices has come as a big relief for the market. Prices had tanked 30 per cent in the early part of the year. On the charts, with the recent reversal, the outlook has now turned bullish. There is a strong possibility of prices continuing to rally.

The contract had been consolidating sideways between ₹3,800 and ₹4,100 for about three months and looks set to rise in the short term. The sharp 5.7 per cent rally last week has marked a bullish breakout above this range. The contract has also risen decisively above the 200-day moving average at ₹4,070. Immediate support is at ₹4,000 — a psychological level. The 21- and 200-week moving averages at ₹3,934 and ₹3,883 are the key short-term supports for the contract. These two moving averages have tended to limit the downside during the three-month-long consolidation phase.

A rise to test ₹4,439 — the 50 per cent Fibonacci retracement resistance level — and then the next resistance at ₹4,500 looks likely in the short term. The possibility of an intermediate corrective fall to ₹4,300 after testing the above mentioned resistances cannot be ruled out.

The short-term outlook will turn negative only if the contract declines below ₹3,800. But such a break looks unlikely at the moment as the contract has formed a strong base between ₹3,800 and ₹4,100.

The downtrend that had begun from the December 2014 high of ₹5,350 halted after a sharp 34 per cent fall to ₹3,530 in February this year. The contract had then consolidated between ₹3,500 and ₹3,700 in March and April. Since April it has rebounded 14 per cent. This sharp rally has marked the reversal of the downtrend that had been in place since December 2014.

The contract has breached the 21-month moving average resistance at ₹4,182 and this could add momentum to the current rally.

The next key medium-term hurdle is at ₹4,700 — a trend-line resistance level.

A rise to test this level is possible in the coming weeks.

A strong break above ₹4,700 will increase the chances of the upmove extending further to ₹5,000 or even ₹5,300 thereafter. The medium-term outlook will turn bearish only on a strong fall below ₹3,500.

The ensuing target on such a fall will be ₹3,300.

A decisive fall below ₹3,800 will be a first sign of danger which would indicate that the outlook is turning bearish and in such a scenario there would be a strong possibility of the contract breaking below ₹3,500.

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