Futures contracts of select agricultural commodities witnessed a sharp fall in prices in the last two weeks of November without fundamentals supporting the weakness. Market watchers do not dismiss the possibility of speculators bringing prices down ahead of the peak export season. From their highs in mid-November, December contract of castor seed in National Commodities and Derivatives Exchange lost 12 per cent, guar seed 10 per cent, guar gum 17.6 per cent, jeera 12 per cent and coriander 9 per cent. “Prices of most of these commodities have been firming up since October. Hence there could be an element of profit-booking in the fall. However, usual profit-booking sees prices correcting by 5 to 6 per cent. While speculation is part of futures trading, in this case, speculators trying to pull down prices cannot be dismissed as prices have fallen by 10 to 12 per cent,” said a market watcher who did not wish to be named.
According to him, the volumes are thin and the number of participants is very less on the futures platform. Even one or two participants can bring down the market.
“The speed at which prices have fallen is raising everyone’s eyebrows,” said Kayomarz Sadri, analyst with ABans Group. Queries sent to NCDEX seeking clarity on the issue were not answered. “Due to deficient monsoons, the sentiments are bullish in agri commodities. Rains were patchy in parts of Gujarat and Rajasthan, where these commodities are mainly cultivated. Lower production estimates of Kharif crops and lesser acreage reports of Rabi crops have been pushing prices up in the past few months, and some of these commodities were trading at multi-year high levels till the first and second week of November. Apart from guar, price prospects of which are influenced by crude oil prices, there are no major fundamentals supporting the weakness in the past couple of weeks,” said Ajitesh Mullick, assistant vice-president, retail research, Religare Commodities. “Exports peak by December and January, and traders and exporters wait for prices to drop to build stocks,” he added.
Even in case of guar, the production is estimated to have come down from 15.8 lakh tonnes to 14.5 lakh tonnes this year. “Production has been coming down for guar since 2015-16 when it stood at 27.5 lakh tonnes. This time, the acreage was low and late rains have affected the quality of the crop in Haryana. These factors were responsible for guar prices moving up in October,” said Ritesh Kumar Sahu, fundamental analyst, agri commodities, Angel Broking. While crude oil prices have witnessed correction, oil production in the US has increased. US commercial inventories rose by 3.6 million barrels in the third week of November to 450.49 million barrels and production remained at a record 11.7 million barrels per day, indicating higher demand for guar gum in oil rigs. “However, if crude prices fall below a certain level, oil rigs also use cheaper alternatives,” said Sadri.
In other commodities like castor seed, jeera and coriander, there are no major reasons to justify the fall. In mid-November, Sebi lifted its trading ban on 12 entities but decided to continue with debarment of five other entities in a case related to manipulation in castor seeds trading.