Low demand to check mustard prices

Low demand from millers is likely to reduce mustard prices in the next few weeks. The price (mill delivery, 42%) is hovering around Rs 2,450 a quintal in major mandis of Rajasthan. A few months ago, it was around Rs 3,000 a quintal. Mills are working at 40% capacity as demand is slow. The situation at small-scale mills is worse as they are facing the threat of closure.

NO IMPACT OF LOW PRODUCTION
The Central Organisation for Oil Industry and Trade (COOIT) has estimated India’s mustard seed output in 2009-10 (October-September) at 6.4 million tonnes as against 6.7 million tonne a year ago. Although the figure is lower year on year, it is substantially higher than the earlier industry estimate of 5.9 MT. Some traders say production might not be as high as COOIT’s estimate and will be around 6-6.2 MT.

Production in Rajasthan, which contributes 40% of India’s total output, is estimated to be down 15%. The production is likely to be around 2.6 MT, against 3 MT last year. The acreage is also down from 3.2 mn ha to 2.4 mn ha this year. But low demand has nullified the impact of low production.

HIGH CARRYOVER PLAYS SPOILSPORT

Arrivals are lower this year due to a delay in harvesting and holding back of stocks by farmers. Currently, 300,000-350,000 bags (each of 85 kg) arrive daily across the country, sharply down from about 600,000 bags last year. Carryover stock of around 1.4 mn tonnes is putting pressure on prices. It is likely to remain at up to 7 lakh tonnes at the end of next year.

SOYA AND PALM OIL CHEAPER

A cheap soya oil is making it difficult for mustard to compete. Soya oil prices have tumbled by more than Rs 5 a kg in a week. High processing cost of mustard can’t match the declining prices of duty-free imported soya and palm oil. If the government doesn’t impose a duty on imported soya and palm oil, the mustard seed will trade lower on account of higher global oilseeds output and huge import of edible oils.

NORMAL MONSOON MAY UP OILSEED OVERSUPPLY

The Met department’s early forecast of a normal monsoon this year has created a flutter among growers. This time, they don’t want to stock the crop as the favourable monsoon will help improve the yield of Kharif oil seeds like soya, groundnut, and sesame. The prices of mustard will tumble on good output of these oilseeds.

The medium-term bearish outlook is being mirrored by the mustard seed futures on the NCDEX, which was showing a mild backwardation, a scenario where far-month contract trades at a discount to current month.