Indian Commodities - An Overview
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List of Active Months for Various Commodities in International Markets
CASTOR : is volatility an opportunity or a threat?
Castor is one of the most liquid yet one of the most notorious commodity in the oilseeds stable. Super wild price swing and sizeable price inelastic demand for its derivative makes it one of the best investment grade as well as speculative commodity.
Castor remains one of the most important cash crops in Gujarat. Gujarat produces 70 percent of total castor produces in the country. Castor oil is the key derivative product and 80 percent of oil is exported to US, Europe and Far East. Unlike Groundnut, it's not that sensitive to weather vagaries. It has longest crop cycle, nearly seven to eight month and castor plant continued to deliver seeds upto eight times, provided it receives enough water and weathers a desease known as Sukaro.
Sowing of castor begins around late Jul/ early August and completed by end September/ Early October. North Gujarat is the key castor producing area and cultivates nearly 70 percent of castor crop. Banaskantha is the largest castor-producing district, which provides nearly 35 percent of total castor output. Other key producer states are AP and Rajasthan. Seeds produced in Rajasthan often sold by Gujarat based mandies due to proximity.
Market Dynamics
Cash market is loosely organized. Producers are selling there seeds through APMCs. Arrivals in AP starts around late November while arrivals in Gujarat commence from December. February is the peak month and arrivals start declining onwards June. During peal cycle arrivals reaches to 40000 thousand bags of 75 kg each.
Gujarat caters nearly 60-70 percent. percent of total produce. In case of exportable HPS, seeds- Gujarat is the only provider and Veraval port is leading center. HPS
Key mandies: Key mandies for castor seeds in Gujarat are patan, Deesa, Unza, mehasana and Visnagar. There are 18 active mandies, which facilitate physical traded in castor and mustard. Castor and mustard Outside Gujarat Sumerpur in Rajsthan and Hydarabad and Jalchala in AP are another key mandies. Seeds from AP have poor oil content hence not useful for exports and it mainly absorbed by local industry. Oil contants varies from 36-45 percent basis on the seeds and soil conditions.
Hedging mechanism: Contrary to other oilseeds, castor futures markets are vibrant and one of the most liquid. Manipulation and price overshooting is part and parcel of the futures, however hedgers play dominant role in price discovery. Futures are traded at Ahmedabad, Rajkot and Bombay besides NMCE. ACE and Rajkot enjoys good volume while Mumbai lacks volume. Bhabhar the parallel futures market where castor futures are traded, also commands very good volume, however it is not regulated and normally considered to be casino.
Thanks to low cost to carry and attractive contango of 3-3.5 percent between Cash/futures, castor is one of the most favorite commodities for hedgers. Risk free return could be as high as 30 percent. However some loopholes in the byelaws of ACE needs to be carefully studied before significant hedging positions are taken.
Price sensitivity: Thanks to overshooting in futures, cash markets are highly dependent on futures and cash market is often acted as a lagging indicator to the futures. Price swings are as high as 60 to 80 percent on yearly basis. During last five years castor has undergone massive changes. Market is somewhat oligopolistic in nature. Historical high low is during last five year is Rs 195-Rs 500 per 20 kg. There is no excise, however it attracts sales tax of 2 percent.
Important applications: Castor oil, the derivative of the castor is mainly uses in paints, plastisizers, lubes and cosmetics. Europe accounts nearly 40 percent share in India?s export.
Groundnut: The king of oilseeds
Groundnut is considered king of oilseeds. Gujarat is the largest producer state with average ravi crop of 16- 25 lakh ton a year. Other key producing states are AP, Tamilnad and Karnatak. GN is highly dependent on monsoon and very sensitive crop. It needs monsoon showers with frequent arrivals. It needs minimum 3 rainfall equally distributed during its 3 month long crop cycle. Normally it is cultiweted during July-August and crop matures after 75 to 90 days depending upon monsoon progress. Excess rains normally delays harvest and some time even damages the crop. Insufficient rains affect oil content in the seeds.
Market Dynamics
Like other agri commodities, cash market is loosely organized. Producers are selling their seeds through APMCs. Peak season begins onwards October and season lasts till December-February. Gujarat supply nearly commands nearly 55-60 percent of total produce. In case of exportable HPS seeds- Gujarat is the only provider and Veraval port is leading center. HPS exports range from 0.5 to 1.75 lakh tons depending upon quality.
Key mandies:
Having situated in the GN belt, Rajkot is largest center for GN oil and seeds. Other key mandies are Jamnagar, Junagarh, and Gondal, Dhoraji, Amereli, Porbandar an Bhabhar.� Outside Gujarat, Adoni and Produtur and Chennai are important trading centers.
Arrivals begins in late October/Early November topped out during January. During peak season daily arrivals in Saurashtra reaches to 1.50 lakh bags of 75 kg each. Average Kharif crop size is 12-14 lakh tons if monsoon rains are normal. But when rainfalls are bountiful and price in the previous years are `high? crop could well reach 25 lakh tons.
Summer crop remains very small and ranges betwewn 1-1.5 lakh tons. Crop season for summer crop is April-June.
Hedging mechanism:
Futures trading ion GN seeds, cakes and oil is permitted and Government has given permission to three exchanges to undertake futures trading in GN and its derivatives. The exchanges are Rajkot Oil & Bullion Merchant Association, Bombay Commodity Exchange and National Multy Commodity Exchange-NMCE. GN oil futures traded at Rajkot met an overwhelming success during the launch in December 2001 however so called price rigging caused the premature death of the contract.
GN oil & seeds futures are thinly traded at NMCE. In absence of strong cash markets and indirect political intervention prevents price efficiency and hinder the growth of futures markets. In absence of futures markets, retail investors are not keen to invest in GN. Farm Cooperatives and large stockiest and millers are the market makers.
Price sensitivity: GN seed in general and oil in particular is a political sensitive commodity in the state of Gujarat and rising GN oil prices often become an issue for the opposition.� Until late 80?s GN oil millers, tradionaly known as oil lobby were as powerful as that of Maharastra sugar lobby, however recently they have been weaken due to liberalization and increased dominance of imported oil. They are down but not out and still enjoy some clout being an important source of local election funding.
GN oil prices tend to overshoot during the festive season, mainly August-October. During entire calendar, November or period prior to Deepavali considered most bullish for oil. December and January considered busy month since domestic house hold buyers normally build stock during this period.
Price range could be as high as 100 percent. Normal price band is Rs 350-450 a 10 kg. Historical high low during last five year Rs 310-Rs 710 a 10 kg.
Production in Gujarat vary from 8 lakh tons to 25 lakh tons depending upon monsoon and price prospects.
Important applications:
GN oil is a popular cooking medium in Gujarat and approximately 30-45 percent is price inelastic. Often considered as a cooking medium of rich & affluent class. Seeds have usage in snacks and exports. HPS GN seeds having special food grade quality is mainly exported to Indonesia and Europe and US, however export has been affected since last few years due to high content of Aflatoxin.� GN meal, the byproduct is important cattle feed and has good local market.
Mustard/ Rapeseed : The emerging winner
Mustards or rapeseed is one of the most versatile and largely grown winter oilseed crop and cultivated in five states, namely Rajasthan, Gujarat, UP, Haryana and MP. Rajsthan is the largest producer while Gujarat and UP and MP are other key producers. Its pungent flavor makes it a useful medium for pickles and special Chinese delicacies. Sowing normally begins after Deepavali, ie late October or early November. Harvest begins from February and March- Holi festival is the peak period.
Key mandies:
Sumerpur, Jaipur, Kota and� Hanumangarh and Ganganagar are the key mandies in Rajsthan. In Gujarat Unza and Mehsana are important madies. Kanpur and Hapur in UP are also active mandies. Season begins in Jan-feb and peak is the March-April. July-August is lean season. During peak season arrivals hit 1.5 lakh bags if harvest is good. During off peak season arrivals remain around 30000 bags of 70 kg. Seasonally bullishness normally recorded during August-October. Thanks to easy storability and longer shelf life, it is considered one of the most favorite investment grade commodities. Farmers in Gujarat some time store it as long as five years.� Oil constant varies from 38-44 percent depending upon soil and moisture conditions.
Price sensitivity:
So far volatility is concern; it is less volatile in compare with Soya and castor, excepting recent gyrations in NBOT futures. Historical price range is Rs 1200-2200 per quintal for the seeds containing 42 percent oil content.
Hedging mechanism:
Like castor, it is also having very vibrant futures markets. Volume in the futures traded at Indore has shown steady rise. Volume is also seen promising in NMCE, which makes it one of the most promising commodities for national commodity exchanges. Relatively good volume at NBOT and NMCE is also providing an opportunity to arbitrage between two markets. As Jaipur is about to launch futures in Mustard, it is likely to outperform castor and may become numero uno in the paper trade.
Parallel futures markets, especially in the mustard oil are highly liquid. Currently parallel futures are traded at Shri Ganaganagar, Hanumangarh, Bickaner markets.� We consider it equally good investment commodity at or above par with Soya.
Having diversified cash markets, chances of price manipulation are less making it more price efficient commodity. Ideal for hedgers and investors.
Soya:The golden seed
After the late 80?s, soy has gained momentum in the oilseeds complex. Credit goes to the aggressive awareness programs by American Soybean Associations and farmers fancy to go for some innovative crops. Currently MP is the largest soy producing state with average crop size of 40-60 lakh tons a year.
Soy meal remains the major growth driver for the sustainable crop preference as it fetched good premium in the export market. Indian soy meal enjoys strong brand equity in the Far East markets due to non-GM appeal and rich protein content.
Besides, soy oil is very popular cooking medium in the Northwest states of MP, Gujarat, and Rajasthan. Being a price competitive cooking medium it is mainly consumed by bulk users such as hotels, restaurants and the lower middle class household.
Sowing season begins in July. Like GN, it is also highly dependent on monsoon and required ample water and moisture. Crop cycle is around 75-90 days. Oil contents vary from 14-16 percent; hence, crushing margins and price of meal are also important determinant in soy oil prices. Having close integration with external markets. US, Latin American Soy, and Malaysian palm oil complex are external factors that influence prices.
Soy oil futures are traded at NBOT and claim to be a very vibrant futures market providing liquidity and volume. While other exchanges lack participation from corporate, NBOT proved an expectation and many large corporate like Adani, ITC and foreign brokers such as Alfred Topher and Cargill are the member of the exchange. In terms of volume, it has phenomenal growth and set to emerge as a winner.
Soy oil futures are the most traded, however futures in beans and meal are not active. Some arbitrage opportunity often occurs due to overshooting in oil prices. Soy prices are relatively less volatile.
Hedging mechanism:
Soy has vertical market integration with CBT soy complex and Commex Palm complex. During lean season it lags behind CBT and KLCE, however during july-march season it is more dependent on local market conditions such as weather and domestic demand and supply.
Price swing during 1998-2003 were as volatile as that of MDX palm or ACE castor. Soy oil prices varied between Rs 225-Rs 450 a 10 kg. It often blended with premium oils such as GN oil. Having longer shelf life, it is also a good investment grade commodity.
Price sensitivity:
Price swing during 1998-2003 were as volatile as that of MDX palm or ACE castor. Soy oil prices varied between Rs 225-Rs 450 a 10 kg. It often blended with premium oils such as GN oil. Having longer shelf life, it is also a good investment grade commodity.
Price swing during 1998-2003 were as volatile as that of MDX palm or ACE castor. Soy oil prices varied between Rs 225-Rs 450 a 10 kg. It often blended with premium oils such as GN oil. Having longer shelf life, it is also a good investment grade commodity.
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