Castor seed up 25% since re-launch of futures market
Prices may stay firm on low supply, high export demand
Weak production forecasts and good export demand have seen castor seed surging more than 25 per cent since its re-launch in the futures market in January. Though prices saw some corrections in the second week of April, they have made some recovery and are expected to remain firm in the coming months, especially after the end of the harvest season.
Most active castor seed futures for May delivery in the National Commodity and Derivatives Exchange (NCDEX) rose to yearly high of Rs 5,190 per quintal during the first week of April from Rs 3,993 per quintal after relaunch of contracts.
Castor seed production is expected to decline by 25 per cent in 2016-17 because of lower acreage in Gujarat. According to the Solvent Extractors’ Association (SEA) of India, castor seed acreage for the country in 2016-17 season declined by about 24.2 per cent to 840,000 hectares against the last year’s acreage of over 1.10 million hectares.
In 2016, prices were trading lower due to higher carryover stocks and anticipation of higher castor harvest. Hence, some farmers shifted to other remunerative crops this time.
In its fourth round estimate, SEA has revised down castor seed production estimate to 1.06 million tonnes from 1.42 million tonnes in 2015-16. For the largest producer of castor seed, Gujarat, SEA has estimated a production of 853,000 tonnes while the Gujarat agriculture department has pegged production to more than 1.2 million tonnes.
Gujarat, Rajasthan and Andhra Pradesh account for more than 90 per cent of total domestic production. The supplies have been lower this season also due to increasing holding capacity of castor farmers in Gujarat and Rajasthan. They are holding on to their castor crop in anticipation of higher prices in the coming months, said Ritesh Kumar Sahu, analyst, agri commodities, Angel Commodities.
On the other hand, the export demand for castor oil and meal has been strong around this time. India is the largest exporter of castor oil whereas China is the largest importer. Other important import destinations include European Union, the US, Japan and Thailand.
Castor oil and its derivatives have applications in the manufacturing of soaps, lubricants, hydraulic and brake fluids, paints, dyes, coatings, inks, cold resistant plastics, waxes and polishes, nylon, pharmaceuticals and perfumes. Castor meal, the byproduct of the oil extraction process, is mainly used as fertiliser.
The supply and demand scenario till April first week supported prices. However, castor seed May contract on NCDEX declined by about 10 per cent to Rs 4,601 per quintal in the second week after touching yearly high levels in the previous week. The decline in prices has been attributed to slow demand from the bulk buyers and crushers at higher prices.
However, as the arrivals in the physical markets in Gujarat started picking up, prices started recovering. The oil mills and stockists too started procuring castor seed more aggressively on account of lower production forecast and lesser supplies in physical market compared with normal peak arrivals. The prices have recovered about 4.7 per cent to Rs 4,818 per quintal last week.
Industry watchers expect prices to remain firm in the coming months. “The export demand for castor oil and meal historically increase during the months of March, April, May and June. This will keep the prices supported at higher levels. We expect the prices to stay higher and may cross Rs 5,000 per quintal as the harvesting season ends,” said Sahu.
sangeethag@mydigitalfc.com
Columnist: 
Sangeetha G.