Prices of agricultural commodities, kharif crops expected to rise 14%

MUMBAI: Prices of agricultural commodities are expected to rise up to 14 per cent around the time of the kharif harvest in October after the likely shortfall in crucial monsoon rain, trends in the futures market for consumables such as sugar, edible oilseeds and spices indicate.

Prices expectations have risen since the India Meteorological Department (IMD) issued its forecast last month saying that the June-September monsoon season rainfall will be below average. This is a matter of concern since, if there's deficient rainfall, it will be the second successive year of weak monsoon, which may also delay easing of interest rates and put the economic recovery in jeopardy.

National Commodity & Derivatives Exchange ( NCDEX), the country's largest farm futures bourse, signalled that traders' expectations of wholesale prices of essential items like soyabean, castorseed, guarseed, turmeric, coriander and sugar around kharif arrivals around October jumped 0.5 per cent -14.5 per cent during the week ended April 24, when the Met released its estimate for the monsoon, from a week ago.
NCDEX has around three-four months' concurrent contracts in most commodities. Current contracts traded are the ones for May, June, July and August in some cases.

"The futures market is signalling now that prices of daily consumption edible items would rise around October," said Chowda Reddy, AVP, Inditrade Derivatives & Commodities.

What supports this view is the money that's flowing into these commodities from genuine market participants and speculators as measured by open interest (OI). OI is the open buy or sell positions taken by market participants. A bullish trend is indicated when a price rise is accompanied by a jump in OI.

While soyabean for August delivery gained 8.8 per cent to Rs 39.80 a kilo in the week ended April 24 from that ended April 17, the OI increased to 20,500 from 15,000 tonnes in the same period. This means 5,500 tonnes more was largely purchased over the week. Similarly, guarseed for July delivery rose 14.5 per cent to Rs 53.61/kg while OI rose to 2,480 tonnes (910 tonnes). Castorseed August rose 4.2 per cent to Rs 40.49 a kilo and OI increased to 4110 tonnes (2,790 tonnes). Turmeric (August), coriander (August)and sugar (October) rose by 0.5 per cent, 6.3 per cent and 4.1 per cent respectively, with rise in OI.

Derivatives analysts expect the price outlook of these commodities to remain firm until June, when IMD updates its forecast and the southwest monsoon sets in.

"The OI in these commodities rose in the week after the IMD forecast on April 22, even though the prices of some corrected," said Naveen Mathur, head of commodities, Angel Commodities. "This means most bullish positions are intact. I expect volatility in these commodities to continue till IMD releases its second stage update."

OI, indicating fresh funds flow into the market, increased to 22,300 tonnes for soyabean during the week ended April 30, up from 20,500 tonnes in the week ended April 24.

OI in terms of tonnage in guarseed jumped to 2,990 (2,480), castorseed 7,220 (4,110), turmeric 65 (20), coriander 1,860 (960) and sugar 9,880 (8,110) over the same period.