Agri Commodities Annual Report 2016

Agri-Commodities: Annual Review and Outlook 2016

Thursday, January 07, 2016

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Content

Overview- Agri Commodities

Pulses

Oilseeds

Soft-Commodities

Spices

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In 2015, Guar gum and Cardamom were the top losers posting negative returns of 45 percent and 27 percent respectively. Poor demand and higher carryover stocks amid lower export demand from the US of guar complex exerted downward pressure on the prices, while Cardamom prices slipped due to rising imports and record production forecast.

Castor seed falls due to subdued castor oil export and higher production while Crude Palm oil (CPO) to trade lower during the year due to lower international price and higher imports. Coriander and Jeera prices have touched their multi-year highest levels during the year but then falls 43 per cent and 22 per cent from their highs due to muted export demand amid quality concern.

As far the international agricultural commodities are concerned, prices remained largely mixed. Soybean, Corn and Soy oil posted negative returns due to expected higher output & lower demand. While Sugar, Cotton and CPO gains in 2015 on forecast of output loss due to weather phenomenon during 2016.

Monsoon 2015 The southwest monsoon hit the Kerala coast four days late on Jun 5. June recorded 16 per cent excess rain and its rapid advancement covers entire country one month in advance leading to early sowing of kharif crops. However, .

37.7

22.6 17.6

11.0 10.7 5.5 5.0

1.2

(2.5) (3.6) (5.7)

(13.1)

(24.9) (26.1) (26.7)

(34.2)

(45.9)(60)

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50

Source: Reuters, Angel Commodity Research

Agri-Commodities Price Performance (%) - 2015

7.6 6.2

3.6

(4.38)

(9.3)

(13.1)-15.0

-10.0

-5.0

0.0

5.0

10.0

Source: Reuters, Angel Commodity Research

Agri-Commodities Price Performance (%) in International Market- 2015

Overview Agri Commodities

Year 2015 was a volatile year for agricultural commodities as the prices have moved either side during the year. This excessive volatility attributed to fluctuating weather phenomenon coupled with weakening and rising in global demand. Chana, Maize and Sugar were the top performed commodities while guar gum, coriander and cardamom were top losers in 2015.

The year 2015 began on a bad note for the farm sector as untimely rains in March-April affected Rabi crops of 2014-15. Monsoon in the country was quite erratic in last two years. The country had faced three consecutive monsoon shocks - below normal south-west monsoons in 2014 and 2015 affecting the kharif crop production, and unseasonal rains & hailstorm during peak Rabi harvesting in 2015.

Apart from weather phenomenon, some of the other reasons also have a larger impact on agri-commodity prices in 2015. Government policies regarding import duties cuts for pulses and rise for edible oils, export support & subsidies for Soft commodities like Cotton and sugar, increase in Minimum Support prices (MSP) for both kharif and rabi crops particularly pulses and oilseeds.

Further, the decision taken by certain states under Essential Commodity act to impose stock limits on pulses and oilseeds by major producing states and Prepone dates for staggering delivery dates and imposition additional cash limits on both -buy and Sell sides by commodity regulator impacted the agri-commodity prices.

After below normal monsoon, prolonged excessive rains in south and normal weather conditions for rabi planting during Nov-Dec’15 has pressurized the prices of rabi crops like Jeera and Mustard. Except for Spices and Cotton, which largely remained bearish in the last quarter of the year 2013, the upward trend remained intact for other agricultural commodities.

In the domestic markets, Chana lead the gainers list registering about 45 per percent gains in 2015 followed by Maize, Sugar, Kapas, Soybean and turmeric posting 22.3 percent, 17 percent, 11 percent, 9 per cent and 6.5 percent respectively.

Earlier in 2015, Sugar and Cotton prices touch their lows on ample supplies and lower world demand but then improved during later part of the year due to concern over production due to weather phenomenon- El Nino. Prices of Maize and turmeric started to sur275ge after July on deficient rains in the growing states.




Kharif Crop Output - First Advance Estimates (mt)

Crops 2015-16

(1st

estimate)

2014-15

(4th

estimate)

% chg

Rice (kharif) 90.61 90.86 - 0.3

Maize (Kharif) 15.51 16.39 - 5.4

Kharif Pulses 5.56 5.63 -1.2

Groundnut 5.11 5.07 0.8

Soybean 11.83 10.53 12.3

Castor seed 1.94 1.73 12.1

Cotton 33.5 35.48 -5.6

Sugarcane 341.43 359.33 -5.0

Source: Ministry of Agriculture

Rabi Sowing Progress

Sowing of Rabi crops have commenced in the domestic markets and winter crop prospects remain strong considering favorable soil weather and soil conditions. According to the latest data released by the agriculture ministry, total area sown as on Jan 01, 2016 was 541.1 lakh hectare as against 567.6 lakh hectare (lh) reported a year ago. Last week, only 507 lh were under winter crops. This season’s rabi crop is about 4.7 per cent less than a year ago.

Crop Area sown in 2015-16

Area sown in 2014-15

% Change

Wheat 271.46 293.16 -7.4

Pulses 128.24 131.33 -2.4

Coarse Cereals 55.19 50.97 8.3

Oilseeds 71.47 76.11 -6.1

Rice 14.77 16.05 -8.0

Total 541.12 567.63 -4.7

Continue… after July the monsoon slowed down. July witnessed a deficiency of 16 per cent and It further grew to 22 and 24 per cent for August and September respectively. Overall, monsoon in 2015 was deficient by 14 per below normal, for the second consecutive year. The weak and erratic monsoon distribution attributed to El-Nino phenomenon.

MSP increase The prices for all major kharif season crops - cereals, pulses, oilseeds and cotton - have increased. This decision is based on recommendations of the Commission for Agricultural Costs and Prices (CACP) who, after taking into account the cost of production, overall demand-supply, domestic and international prices and inter-crop price parity has recommended the hiked the MSP of Kharif crops.

The Cabinet made decided to give a bonus of Rs.200 per quintal for kharif pulses and Rs. 75 per quintal for Rabi pulses over above the recommendations of the CACP. Overall, the prices have increased by Rs. 250 – 275 per quintal to give a strong price signal to farmers to increase acreage and invest for increase in productivity of pulses.

Source: Ministry of Agriculture

First Estimate In the first advance estimates for Kharif crop output 2015-16 released in the month of September, the Agriculture ministry pegged the food grain output at 124.05 million tonnes (mt), marginally lower by 2.26 mt compared to 2014-15 season.

As far as the individual crops are concerned, the output estimated to remain above last year’s levels for Groundnut, Soybean and Castor Seeds while production for Cotton, Maize, pulses and Sugarcane, where output estimated a tad lower.

Production of Kharif Oilseeds is estimated 19.89 mt, higher by 0.23 million tonnes as compared to production of 18.32 mt of Kharif Oilseeds estimated during 2014-15.

Rs. Per Quintal Commodity MSP for 2014-15 MSP for 2015-16 Increase

Tur (Arhar) 4,350 4,625 (include Rs. 200 Bonus)

275

Moong 4,600 4,850 (include Rs. 200 Bonus)

250

Urad 4,350 4,625 (include Rs. 200 Bonus)

275

Gram 3,175 3,425 (include Rs. 75 Bonus)

260




Pulses Chana

Chana turned out to be the top gainers in 2015 after recovered from their lowest levels in 2014. It traded with upward bias throughout the year. The positive momentum started at the beginning of sowing season, Oct’14 and since then prices have surged more than 77 per cent to date.

In 2015, chana surged about 46 per cent from its lows in Jan’15 on increase domestic demand, short supplies due to crop damage and expensive imports. In the first half of the year, prices surge more than 28 per cent from Rs 3,500 per quintal to Rs 4,500 levels on reports of lower sowing progress due to weak monsoon forecast and expectation of imposition of import duty.

However, it remains quite stable at Rs 4,400 levels during Jun’15-Jul’15 period, due to imposition of stock limits by some state governments and prepone dates for staggered delivery by the NCDEX. Moreover, good monsoon rains and extending duty-free chana imports also helped in cap on prices.

Chana prices moved up again after July after government exempted stock limits for all the warehouses registered with Warehouse Development and Regulatory Authority (WDRA) and forecast of weak monsoon during the second half of monsoon season (Aug-Sep) by Indian Meteorological Department (IMD).

However, during the end of the year, prices have cooled down after government raids on hoarders following stock limits, resulted in seizure of 1.33 lakh tonnes of pulses, of which over 1 lt have been offloaded in the market.

In the recent development, government is planning to create a buffer stock from current year and Cabinet Committee on Economic Affairs (CCEA) approved procurement of about 50,000 tonnes pf pulses from the kharif crop 2015-16 and one lakh tonne out of arrivals of rabi crop of 2015-16.

3000

3500

4000

4500

5000

5500

Jan-1

5

Feb

-15

Mar-1

5

Ap

r-15

May-1

5

Jun

-15

Jul-1

5

Au

g-15

Sep

-15

Oct-1

5

No

v-15

De

c-15

Source: Reuters

Monthly Average Chana Price (Rs / Quintal)- NCDEX

In addition, substantial increase in the Minimum Support Price (MSP) for chana from Rs. 3175 per quintal to Rs.3425 for the marketing season 2016-17 encouraged higher planting area.

Sowing progress

As per data release by Agriculture Ministry, pulses planted in 12.8 million hectares so far, compared with 13.8 million hectares last year, and a seasonal area of nearly 14 million hectares. The acreage under chana reported at 79.17 lakh hectares (lh), higher by 4.4 lh compared to last year data.

As per data released by respective state agriculture department, chana acreage is recorded higher in Maharashtra (13.16 lh Vs 10 lh), Andhra Pradesh (4.04 lh Vs 3.26lh) and Karnataka compared to last year planting but slightly lower in Rajasthan (12.35 lh Vs 12.56 lh) and Madhya Pradesh. Higher production expected

In the first advance estimate for 2015-16, government has set the target of 95 lakh tonnes of Chana production.

To achieve the target and to ensure remunerative prices to farmers, government extended the duty free chana import only until December while for other pulses it is extended indefinitely except masur.

At present, the domestic shortfall in pulses output has led to rise in retail prices forcing the government to take several measures such as crack down on hoarding, increased exports by government agencies and creating buffer stocks to curb price rise.

Earlier, in fourth advanced estimate release in August by Department of Agriculture & Cooperation (DAC) production estimated at 71.7 lakh tonnes (lt) is less by 4.2 lt estimated in third estimate in May.

The recent estimate for chana production is lowest in six years i.e. since 2008-09.

45

55

65

75

85

95

105

20

10

-11

20

11

-12

20

12

-13

20

13

-14

20

14

-15

20

15

-16

*

Lakh

To

nn

es

Indian Chana/Gram Area (lakh hac.) & Production (Lakh Tonnes)

Area (lakh ha) Production (Lakh tn)

Source: GOI * Production target




Continue… High Imports During the year, domestic demand for chana was fed by imports from Australia, Russia, Ethiopia and Myanmar but a rise in imports failed to check the price as the imports were expensive as rupee become weaker against dollar.

According to the latest government data, country has imported about 3.07 lakh tonnes of chana in during first six months of MY 2015-16, which was 1.29 lt last year same period. During current marketing year, more than 1.3 lt of chana imported from Australia while 1.22 lt imported from Australia.

India imported about 4.19 lakh tonnes (lt) of chana in 2014-15, an increase of 51.8 per cent compared to the quantity imported in 2013-14.

Global Scenario In Australia, during 2015, chickpea was planted in over 6.26 lakh hectares, which was over 70 per cent higher than the area planted in 2014.

According to Pulse Australia, the increase in planting area is mainly due to a strong rally in world prices is due to strong requirement from India. The production in Australia forecasted between 9-10 lakh tonnes, which was 475,900 last year.

The weather condition for chickpea production and harvesting in Australia reported to be favorable. The harvest of new season crop has already started and Pulse Australia has pegged the harvest at 940,000 tonnes, while Abares, the Australian government crop agency, forecasted at 990,000 tonnes.

Chickpea prices in Australia continuing to make new highs and prices are reported at more than $900 a tonne as dry weather threatens the Indian crop.

1.461.98

3.38

1.01 2.07

6.98

2.76

4.19

3.07

0

1

2

3

4

5

6

7

8

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

20

12

-13

20

13

-14

20

14

-15

20

15

-16

*

Source: Dept of Commerce, GOI * Apr-Sep

Chana Imports (Lakh Tonnes) in India

Outlook The outlook for chana during first quarter may be little bearish due to steps taken by the government to check hoarding and improving supplies by importing more chana. Moreover, creation of buffer stock and good sowing acreage in the top producing states may keep prices low.

With new season, arrivals are still three months away — from March onwards. Until then, expensive imports, hoarding of chana in foreign ports and falling stocks may well support prices to some extent while big correction are also possible if government initiated action against private importing countries to hasten their shipping consignment. In this condition, the price may touch a low of Rs. 4,200 per quintal.

However, in the past, chana witness huge fluctuations in prices depending upon weather phenomenon such as unseasonal rainfall and drought conditions. However, still there is short supply of the commodity as the domestic demand fulfilled by the exports and any upside shock from erratic weather during harvesting of Chan prices will pick up after April 2016.

The upside movement will be stronger if there is any unseasonal rains for the second consecutive year. From June onwards, monsoon and world production scenario would determine the market trend. NCDEX Chana April will trade in the range of Rs 4,000-Rs 4,500 per quintal as these factors play out.

Technical Levels for 2016

Contract Unit Support Resistance

NCDEX - Chana ₹/qtl 4200 / 3600 5,100 / 5, 500




This year soybean acreage increased by 6.35 lakh hectares (lh) or 5.8 per cent compared to last year sowing area. In the latest data released by Solvent Extractors Association of India (SEA), the area under soybean cultivation is 116.3 lh in the country compared to 109.34 lh last year.

However, uneven distribution of monsoon rains and attack of pests in major part of crops planted in Madhya Pradesh is likely to affect the production this year. Madhya Pradesh, which is known as Soybean bowl of India, may produce 14.7 per cent lower at 44 lakh tonnes (lt) compared to 51.6 lt last year according to Soybean Processors Association (SOPA). While, Maharashtra and Rajasthan may produce 16 per cent or 3.8 lt higher and 2.6 per cent or 40 per cent higher production respectively compared to last year.

According to SOPA, soybean production in the country may be down by about 4 per cent during 2015-16 to 86.4 lakh tonnes, compared to previous years’ revised estimates of 90 lt. Although SOPA’s estimates stands much lower than the farm ministry’s first advance estimates of 118.3 lakh tonnes released in September. However, in the month of November, Central Organization for Oil Industry and Trade (COOIT) estimated soybean output lower at 72 lakh tonnes in 2015-16 season against 91.70 lakh tonnes produced last year.

Falling Soybean meal exports – higher soyoil imports In 2015—16 fiscal, soy meal exports in the first eight months hit a historical low of 55,889 tonnes in the first eight months against 2.50 lt logged in the same period last year, thus the decline of 77.7 per cent as per latest Solvent Extractors Association (SEA). However, after falling for five months in a row, Soy meal exports improved during Sep’15 and Nov’15 on month-on-month basis.

India has imported highest quantity of soybean oil, this year due to its attractive price and higher level of soybean prices in the country compared to world prices.

According to latest SEA report, imports of soyoil is reported at 2.99 mt in 2014-15 compared to 1.95 mt previous year. This record import of soyoil is keeping the prices under pressure in domestic market.

Global Update On the global front, two largest Soybean suppliers, i.e. US and Brazil expected to produce a larger crop this year. According to latest USDA report, global soybean production is raised for 2015/16 and is now expected to be about 320.1 million tons (mt) compared to 319 mt last year. In the U.S., soybean output is forecasted, 1.38 per cent higher at 108.34 mt in 2015-16 compared to 106.9 mt last year.

Oilseeds Soybean

In 2015, Soybean prices witnessed a roller coaster performance in the domestic but shown a negative trend the global markets. Prices in the domestic market registered nearly 10 per cent gains y-o-y while CBOT soybean declined 13 per cent. Prices made a peak in the month of May’15 due to reports of deficient rain by IMD and declined sharply thereafter amid above average rains and record soybean acreage in the domestic markets.

A sharp fall in the global soybean prices on expectations of higher US soybean output also exerted downside pressure on the soybean prices on CBOT.

In the month of August, the prices have touched years low and then domestic prices rebounded sharply during Sep-Oct’15 on reports of crop damage in Madhya Pradesh (MP), major producing state, due to unseasonal rain and dryness in some part of the state. Prolonged dryness during September and excessive rains fears over crop yield supported an upward movement in the soybean prices. In the international markets however, the downward trend continued on hopes of higher output in the US, Brazil and Argentina.

It is expected that the soybean prices to fall, once new season soybean is ready for harvest. However, during the last quarter in 2015 i.e. harvesting season, prices increased more than 5.3 per cent due to reports of lower production on lack of monsoon rains and pest attack in soybean growing areas. It is expected that the production may be compensating through record sowing area this season in Madhya Pradesh.

In the international markets however, the downward trend continued on hopes of higher output in the US, Brazil and Argentina.

High Area-lower Production

Above normal monsoon rainfall during start of monsoon season (June-July) over main soybean planting states, Madhya Pradesh and Rajasthan, helped in record planting.

850

870

890

910

930

950

970

990

1010

3000

3200

3400

3600

3800

4000

4200

Jan-1

5

Feb

-15

Mar-1

5

Ap

r-15

May-1

5

Jun

-15

Jul-1

5

Au

g-15

Sep

-15

Oct-1

5

No

v-15

De

c-15

NCDEX (Rs/Qtl) Cbot (Cents/Bushels)Source: Reuters

Monthly Average Soybean Price- NCDEX & CBOT - 2015




Chinese government has announced its intention to reform Yuan exchange rate determination, which will weaken the Yuan exchange rate against dollar. This may lead to expensive soybean import for Chinese soy processors from US.

Outlook The reports of sufficient carry forward stocks, record soyoil import and poor export demand for the domestic soy meal may put pressure on price during first quarter of 2016. We expect the prices to move lower and touch Rs. 3,200 per quintal. Presently, arrival of new season crop is putting pressure on the prices due to subdued demand for crushing from oil mills due to disparity in prices. Recently, oil mill association has urged the central government to reduce the import duty on oilseed crops from 30 per cent to five per cent.

For the second quarter (Apr-Jun’16) onwards, price direction will depending on Rabi oilseed production, export demand for meal and monsoon forecast for kharif 2016. We expect prices to move northwards during second half of 2016, on improved soya meal exports, dwindling stocks due to good domestic consumption and dwindling supplies.

The International soybean prices, expected to remain bearish on reports of record production for the second consecutive year in U.S. and South America, which will surge world soybean ending stocks in 2015-16, which is highest for any year.

Any effect of El Nino and weather damage to the soybean during the harvesting time in South America may be positive for soybean prices. In case of upward shocks, soybean prices may again touch Rs. 4,000 per quintal.



NCDEX - Soybean ₹/qtl 3,300 / 2,700 4,400 / 5,100

Continue…

Soybean exports expected to decline by 3.5 mt or 7 per cent to 46.7 mt in 2015-16 compared to 50.2 mt last year due to robust competition for soybean export from South American countries. Soybean crushing is seeing increasing by 0.46 mt to 51.4 mt compared to last year.

This year U.S. soya meal export might be down due to expectation of restoration of Indian and Argentina shipments in 2015-16. The US demand for soyoil may rise due to increased use for biodiesel in the country and the export also seen increasing by 14.3 per cent to 1.04 mt compared to 0.91 mt in 2014-15. The anticipated increase in U.S. soybean supplies for 2015-16 and lower export demand boosts the forecast of season-ending stocks by 4.92 mt compared to last year to 82.58 mt.

Brazil, the second largest soybean producing country, is estimated to produce about 100 mt in 2015/16 as compared to 96.2 mt in 2014-15, as per latest USDA reports. Brazil's 2015-16 soybean exports estimated at 57 mt to overtake the U.S. trade and expand its international trade to about 44 per cent.

Argentina, the world’s third largest producer, produced 61.4 mt in 2014-15 and forecasted to produce 57 mt in 2015-16 on concern about yields. According to USDA, currently, Argentina is holding maximum stock of soybean at 40.8 per cent of world soybean stocks. Brazil and China holds about 24.29 per cent and 23.36 per cent respectively. Argentina soybean exports expected to get a boost, as the new president has reduced the export tax on soybeans.

In 2015-16, the production in China forecasted to decline by 7 per cent to 11.5 mt due to lower planting area. The export of soybean by China expected to increase by 2.15 mt to 80.5 mt due to lower domestic production and limited rapeseed availability from foreign suppliers.

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340

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16*

Soybean - World Production, Consumption and Ending Stocks (mt)

Ending Stocks Production (mt) Comsumption

Source : USDA

< Production< ConsumptionEnding Stock >

*Forecast




Mustard seed

In 2015, the prices of mustard seed close at same levels seen at the beginning of the year. However, mustard seed prices witnessed a bullish trend from Feb’15 and surged about 56 per cent from its low of Rs. 3,275 per quintal in Feb’15 to touch its high of over 5,100 levels in Oct’15.

Mustard seed is the second largest produced oilseeds grown in the Rabi season. Sowing takes place during Nov –Dec and harvesting is done during Feb–Mar. Thus, as per the seasonal price patterns, mustard seed prices tend to decline during the period January to March and bottom out in the month of April.

In the year 2015, mustard seed did follow seasonality pattern and witnessed a steep decline in the prices Jan’15. However, the prices surged during harvesting season due to unseasonal rains and hailstorms in Mar’15 in north India especially in Rajasthan. The prices have stabilized at higher levels during Jun-Aug’15 period due to reports of below normal rains in the country.

Earlier, during September – October, the prices have firm up substantially on concern over production for second consecutive year due to below normal rains in monsoon. However, prices witnessed steady fall after touching all-time high in Oct’15. Prices slide more than 16 per cent due to late monsoon showers in mustard growing states, which increases chance of normal sowing. Imposing stock limits on oilseeds by Rajasthan government also pressurizes prices. Sowing picked up pace in the month of November and soil conditions are favorable for planting in Rajasthan. As a result, prices have again started declining on hopes of better output in 2015-16 season.

Sowing Progress

Sowing for the new season mustard crop has started and soil conditions are favorable for sowing. As per the latest Solvent Extractors of Association (SEA) circular, as on 18 th December, 2015, mustard seed planted on 59.4 lakh hectares (lh), which is 6.75 per cent or 4.30 lh lower compared to 63.7 lakh hectares during same period last

3200340036003800400042004400460048005000

Jan-1

5

Feb

-15

Mar-1

5

Ap

r-15

May-1

5

Jun

-15

Jul-1

5

Au

g-15

Sep

-15

Oct-1

5

No

v-15

De

c-15

Source: Reuters

Monthly Average Prices of Mustard (Rs per Quintal) - NCDEX

year.

During 2015-16 rabi season, though prices were at record highs, the sowing was delayed by more than a fortnight due to high temperature and lack of soil moisture. Sowing progress in the country was almost 50 per cent less during mid-November, than the area sown last year but in Dec’15 it has picked up.

Rajasthan is the largest mustard seed producing state in India accounting for over 40 per cent of acreage followed by Uttar Pradesh (11.42%), Madhya Pradesh (6.63 %) and Punjab (5.55%). In Rajasthan, it is planted in 23.7 lh on Dec 17, compared to 24.34 lh sown last year same time. Similarly, as per SEA, area under mustard seed in Uttar Pradesh and Madhya Pradesh is less by 1.34 lh and 0.73 lh at respectively compared to last year.

Declining Production The acreage and production mainly depends on the monsoon rains. As per fourth Advance estimate, in 2014-15, mustard production pegged at 63.1 lakh tonnes (lt), a drop of 20 percent from 78.8 lt produced in 2013-14. The production of mustard seed is declining since last three years mainly due to erratic weather.

Last year, mustard output fall to record low as farmer’s sown mustard crop on a smaller area than the previous season due to lower price realization in earlier years. Last year, domestic mustard production forecasted at 57.4 lt, down 12 per cent compared to last year, according to SEA. In its first advanced estimates, Department of Agriculture, GoI, set a target of 81.09 lakh tonnes for 2015-16.

26.20

7.25

6.50

4.80

4.80

3.00

2.85Production - 2014-15 (lakh tonnes)

Rajasthan

Punjab/Haryana

UP

MP

Eastern India

WB

Gujarat

Bihar

Chhatishgarh

65.9 67.0

65.0

57.4

54.0

50

55

60

65

70

75

2011-12 2012-13 2013-14 2014-15 2015-16* F

Area and Production of Rape/Mustard seed

Production (Lakh Tonnes) Area (Lakh Hac)

Source- SEA




Continue…

Lower Meal exports As far as the trade in mustard seed is concern, India is among the major exporters of mustard meal. India exported 10.67 lakh tonnes of mustard meal in FY 2014-15 and in the current FY 2015-16 so far Indian mustard meal exports reported at 2.95 lakh tonnes. Thus, exports of mustard meal hit a historical low in the first eight months of current financial year against 7.66 lt in the same period last year. India exported meal to South East Asian countries like South Korea, Taiwan, Thailand and Indonesia.

Global output to fall The main rapeseed production countries are European Union (EU), Canada, China, and India. EU produced more than 32 per cent of world rapeseed-mustard. Last season, dry weather during the sowing season may reduce the EU’s rapeseed crop following a record harvest last year.

According to the latest estimates by USDA report in Dec’15, world mustard seed output is going to fall for the second consecutive year, led by sharp decline in production in the European Union (EU). Global production is likely to decline to 67.5 million tonnes (mt), compared to 71.9 mt in 2014-15.

In 2015-16, EU production estimated to 21.55 mt, less by 2.9 mt or 13.4 per cent less compared to last year production. It is expected that there will be higher yield in France and United Kingdom. Mustard or rapeseed, the main oilseed for vegetable oil and biodiesel production, has affected due to lack of rain in all top four EU producers -- Germany, France, Britain and Poland.

0

20,000

40,000

60,000

80,000

1,00,000

1,20,000

1,40,000

1,60,000

Apr May Jun Jul Aug Sep Oct Nov

Mustard meal Export (MT) comparision

2014-15 2015-16Source : SEA

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2011-12 2012-13 2013-14 2014-15 2015-16

World Production (mt)

Source : USDA

China has change its policy regarding subsidy in mustard by eliminating its national floor prices, which could result in a 35 percent cut in China’s mustard acres in 2015-16 season. China will produce 300,000 tonnes less mustard this year to 14.1 mt and imports forecasted to rise 400,000 tonnes to 4.5 mt in 2015-16.

However, in Canada, the production of canola, the mustard variant, forecasted to increase by 4.8 per cent at 17.2 mt, compared to 16.4 mt in 2014-15. The absence of a killing frost until late September also helped later sown crops to develop well.

Outlook Government has made a sizable hike of Rs 250 in the Minimum Support Price (MSP) of mustard seed to Rs. 3,350 per quintal. Weather during the next two month shall be crucial for growth of mustard crop. Favorable weather will boost output and keep prices under check and vice-versa.

Arrivals of mustard seed shall commence in the month of Feb-Mar’16 and thus in case of normal supply situation, mustard seed prices may remain under downside pressure and expected to bottom out in the month of Jan-Mar’15 in case of favorable weather conditions. Thus, buying at support price levels around Rs 4,000 per quintal is advisable from the longer-term perspective. Meal exports in current financial has not picked up due to higher prices and lack of Chinese import despite lifting ban in May.

Mustard price in 2016 will depend mainly on the weather conditions during harvesting season and export demand for mustard meal. It is also important to track movement in other oilseeds and edible oil prices, currency movement, monsoon scenario etc. for a clearer trend.



NCDEX - Mustard Seed ₹/qtl 3,700 / 3,300 4,600 / 5,100




In order to reduce the financial burden on sugar mills, government announces to pay production-linked crop subsidies of Rs. 45 per tonnes to farmer. This subsidy is application to those mills who export more than 50 per cent allotted export quota.

At present, the central government levies a sugar cess of Rs 24 a quintal but now Sugar Cess (Amendment) Bill was amended so that government can raise the cess to Rs 200. Earlier it was Rs 25 per quintal. It is expected that the government would raise cess by Rs 100 per quintal to collect Rs 2,500 crore to fund the sugar production incentive of Rs 4.50 per quintal directly to farmers.

Domestic glut to reduce To reduce the supply glut in country, in Sep’15, government made compulsory for sugar producers to ramp up exports of at least 4 million tonnes in the current crushing season. According to Indian Sugar Mills Association (ISMA), mills have so far signed deals to export more than 600,000 tonnes of sugar, out of this nearly 300,000 tonnes sugar has already been dispatched. ISMA is targeting 1-1.3 mt of white sugar and 2 mt of raw sugar.

In its first advance estimate for sugar season 2015-16, Indian Sugar Mills Association (ISMA), has estimated production of 270 lakh tonnes (lt), 10 lt lower from its preliminary estimates released in July 2015. It is expected that, the supply of sugar for current year would be about 361 lakh tonnes after adding 91 lt carry over stocks on Oct. 1, 2015.

Government is further trying to improve trade access for Indian mills in the South Asian Association for Regional Cooperation (SAARC), such as Bangladesh and Sri Lanka.

World Sugar Deficit and unfavorable weather

The sugar market is forecast to have its first global supply deficit in six years in 2015-16. The International Sugar Organisation's (ISO) latest projections show 1.15% lower production compared to last year, at 169 million tonnes (mt). This fall in production expected to coincide with a 2.2 per cent rise in global sugar consumption at over 172.9 mt, bringing the shortage to an estimated 3.5 mt.

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37

42

47

20

11

-12

20

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20

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-14

20

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-15

#

20

15

-16

*

Sugar Ending stocks (Lakh Tonnes)

Source: ISMA

Soft –Commodities Sugar

In 2015, prices have touched lowest levels in six years in Jul’15 and then recovered quite steeply during the second half. Overall, the prices closed higher by 16.5 per cent. After falling about 18 per cent during first half, Sugar Prices climbed around 50.16 per cent in the second half of 2015.

During two quarter (Jan-Mar & Apr-Jun), sugar prices decline due to higher production of sugar for last four years and lower exports due to glut in international market. The sugar prices drop from Rs 2,760 per quintal to Rs. 2,150 levels on NCDEX.

However, during the third and fourth quarter, the sugar prices have surged and reached higher levels in Dec’15. This was due to steady buying by the stockists, fearing sugar deficit and forecast of higher exports potential as some positive steps taken by the government to reduce sugar glut in the country. Moreover, reports on lower production due to below normal monsoon and provided monetary benefits to the sugar mills may be bullish for sugar.

Internationally, the prices have also gained over the period as International Sugar Organization (ISO) forecasted that the global sugar deficit in 2015-2016 & 2016-17.

This deficiency will be due to the strong El Nino weather phenomenon, which is going to affect production forecasts in India, Thailand, South Asia and Central America.

Government initiatives Recently, centre has approved the ethanol blending up to 10 per cent in petrol from earlier 5 per cent. Thus, sugar mills expected to double the supply of ethanol to as much as 1.3 billion litres in 2015/16 to fulfil 10 per cent blending target. This will reduce the production of sugar by mills, as sugarcane juice will divert for ethanol production. Earlier, to improve the financial positions of sugar mills, government remove the excise duty on ethanol.

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2000

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2400

2600

2800

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3200

Jan-1

5

Feb

-15

Mar-1

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Ap

r-15

May-1

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5

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Sep

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v-15

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c-15

Ncdex (Rs/Qtl) ICE-US (Cents/pound) Source: Reuters

Monthly Average Sugar Price -NCDEX & ICE




Outlook In 2016, sugar is looking bullish, as world is moving into sugar deficit situation. However, as per the latest ISMA press release, sugar output in India rose about 7.0 per cent in the ongoing season’s first quarter (October-December) over the same period a year before. Sugar mills produced 79.85 lakh tonnes of sugar, on December 31. Last year sugar mills had produced 74.95 lakh tonnes (lt).

Going forward the production of sugar may decline as India and Brazil may produce more ethanol from the sugar cane crush. The production cut and government policies in favor of ethanol usages in India and Brazil may provide much needed upside shock to sugar prices, in a scenario of global glut. Rising ethanol demand in Brazil following higher taxes for gasoline may be a bullish sign for the sugar as the mills may produce more ethanol than sugar.

Moreover, the prospects for strong El Nino could provide the direction to sugar prices as it is affecting the production in Brazil, India and Thailand due to extreme weather related activity like floods, droughts or other events.

Favorable government policy decision for the sugar sector, to reduce burden on sugar mills by paying directly to farmers, increasing cess on sugar and mandating ethanol blending from 5 per cent to 10 per cent in petrol may surge sugar prices from the current levels to touch Rs 3,500 per quintal or more in 2016. Technical Levels for 2016


NCDEX - Sugar M Grade ₹/qtl 2,800 / 2,400 3,500 / 4,200

Continue…

This year, world is experiencing the strongest El Nino since 1997. El Nino weather pattern usually leads to dry weather across Asia & European Union and bring heavy rains & floods in South America. Drought has already begun to threaten production in number two exporter Thailand and top consumer India as weather department across the world confirm the return of the El Nino phenomenon.

Top producer, Brazil, is also experiencing wet weather, which effected the cane crushing and reduces sugar levels. The consumption demand from the top importers - China, Indonesia, EU and UAE also expected to increase as it is estimated the global output in 2016-17 forecasted to shortfall is at 7.81 mt.

According to latest USDA report in Nov’15, global sugar production for 2015-16 forecast at 172 mt, down by 3 mt compared to last year production. In Brazil, the top producer, forecasted to produce 35 mt, down 950,000 tonnes as majority of sugarcane is expected to convert into ethanol due to increase of the mandated ethanol blend in gasoline and excess rains has cut the sucrose content in sugar cane.

Dry weather in India is threatening to cut output. In 2015-16, sugar output in India estimated at 27 mt in 2015-16 against 28.30 mt last year as per ISMA. However, SGS SA estimates only 23 mt this year due to below normal rains. In Thailand, the production estimated at same levels as last year at 10.8 mt but forecasted less for next year due to dryness.

Moreover, production in European Union is expected to drop by 650,000 tonnes to 16.1 mt due to lower planting and dry weather. Similarly, China, the biggest importer, set for its smallest crop in a decade at 10.6 mt, down 400,000 tons due to decline in area.

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*

World Sugar Production and Consumption (Million tonnes)

Source: USDA #Estimate *Forcast




Lower output estimated The total cotton output in the country is estimated to be 362 lakh bales for the 2015-16, which began on October 1 as per latest forecast by cotton association of India (CAI). Current year production is lower by more than 20 lakh bales.

The total output for the cotton season 2014-15 stood at 382.75 lakh bales. Lower production in cotton is due to erratic monsoon rains over the top cotton producing areas, crop damage in the northern region due to the whitefly attack and lower sown area.

In 2015-16, the area under cotton in the country was lower by about 7.5 per cent, as per the government data. Cotton was planted in about 117.1 lakh hectares (lh) in the country this kharif, compared to last year sowing of 126.6 lh.

The acreage in Gujarat dipped about 8 per cent to 27.6 lh compared to 30 lh last year similarly, acreage in Maharashtra also declined to 38 lh compare to last year’s area by 4 lh.

CAI has also estimated reduction in consumption of cotton in the country during the cotton season 2015-16.

The projected balance sheet drawn by CAI estimated total cotton supply for the season 2015-16 at 454.65 lakh bales while the domestic consumption is estimated at 318 lakh bales, thus leaving an available surplus of 136.65 lakh bales. Improved domestic Exports

India’s cotton exports expected to increase about 26 per cent to about 68 lakh bales in 2015-16 as per latest USDA report in Dec’15. In 2014-15, India exports 53.7 lakh bales.

According to industry sources, India exported around 30 lakh bales (170 kg is one bale) of cotton export during October-December 2015 while last year at the same period, total export were around 22 lakh bales. This year Pakistan has emerged as the largest buyer with the share of about 46.6 per cent exported from India.

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2010-11 2011-12 2012-13 2013-14 2014-15 2015-16* Production (Lakh Bales)

Source: CAI, Dept of Agriculture

Yearwise Cotton Area & Production

Cotton

In 2015, cotton prices have been on roller coaster and the price of cotton traded on Multi Commodity Exchange (MCX) closed higher by 5.17 per cent. During the first quarter, cotton moved lower by 2.74 per cent on domestic glut due to limited export demand.

In Q2, cotton prices increase 2.86 per cent on reports on El Niño phenomenon, which results in below normal rainfall for 2015 monsoon coupled with reports of lower sowing in the US and China coupled with weather related risks in the US.

In Q3, good start to monsoon rains in cotton growing states and forecast of subdued export demand cause prices to move 2.35 per cent lower. The final quarter of the year saw a rebound in the price of cotton, which rose by 5.17% over the final three months of the year on reports of crop damage in Punjab and Haryana due to pest attack and ginners and textile mills showed interest in fresh buying of fine quality cotton.

Cotton traded as low as 13,900 per bale and as high as 16,800 per bale during 2015. Cotton closed at Rs. 16,490 per bale on December 31, 2015 cents per pound.

In the International market, the prices have witnessed a steady fall since July due to estimates of rising global cotton inventories coupled with limited growth of world cotton consumption. However, during last two month of year, ICE Mar’16 contract recovered a little as exports sales remains high coupled with the forecasts of freezing rains in key areas of Texas, the top-producing state.

Earlier, during the first half, the prices have witnessed a steady rise. The uptrend seen mainly due to larger-than-expected cut in world cotton planting intentions, reports on consumption outstripping production for next season and dwindling deliverable stocks of high-grade cotton stocks in world market.

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MCX-Cotton (R/bales) ICE Cotton (Cents/Pound) Source: Reuters

Monthly Average Cotton Price- MCX & ICE - 2015




ICAC further forecasted that the world imports projected to decline in 2015-16 by 4% to 7.3 mt. Imports outside of China are forecast to increase by 6% to 6.1 mt, this rise may not offset the decline in China’s imports, which are expected to decrease by 34% to 1.2 mt.

Outlook The cotton production is expected to decline this season despite higher acreage because of erratic rainfall in top producing states – Gujarat and Maharashtra. Moreover, heavy pest attack in Northern India especially in Punjab and Haryana to trim output.

Recently, Gujarat government declared a bonus of Rs 110 per 20 kg for cotton farmers over and above the minimum support price (MSP). Farmers who sell their crop to the Cotton Corporation of India (CCI) will entitle to get the bonus. The prices of the cotton have shown a firming trend with the markets on anticipation that other states might increase their prices.

This year improved exports to Pakistan, Bangladesh and Vietnam also keeping the price supported at higher levels. Prices have moved above the MSP (minimum support price) level in most states and farmers are selling to exporters and ginners.

The price outlook for cotton in 2016 may surge when the arrivals decreased in the physical market during the second quarter. The revival of export demand from the country to the Asian countries and dwindling carryover stocks may support the uptrend.

Moreover, effect of El Nino phenomenon, deteriorating China cotton reserves and surge in consumption demand and lower estimate of world production from world market may provide upside shock to the cotton prices. We expect the prices to increase and touch Rs. 18,000 per bale next year.



MCX - Cotton ₹/bale 15800 / 15,000 17,500 / 19,000

NCDEX- Kapas ₹/20 kg 820 / 740 950 /1,050

Continue…

This year cotton production in Pakistan forecasted to reduce by more than 30 per cent to 10.85 million bales against initial estimates of 15.50 million bales due to heavy rains in June-July 2015, especially in the cotton belt of Punjab and increased pest attack of whitefly and pink bollworm.

Global updates

Currently, cotton planting in Southern hemisphere – Brazil and Australia is going on and continue through start of 2016. According to International Cotton Advisory Committee (ICAC), cotton area in Australia is projected to more than double to 300,000 hectares on the other hand area in Brazil is expected to decrease 4% to 952,000 hectares. Production in the Southern Hemisphere usually accounts for 8 to 10% of total world production, but this share expected to increase to 11% in 2015-16.

As per the latest World Agriculture Supply and Demand Estimates (WASDE) report released by the USDA, World cotton production in 2015/16 is forecast at 22.58 million tonnes (mt), 13 percent below last season, as lower area combined with a reduced yield push the production to its lowest since 2009/10.

Cotton production for the top two producers—India and China—is projected to account for 51 per cent of the world production forecasts at 6.21 and 5.30 mt, respectively.

Cotton production is expected drop of 19 per cent in China and 20 per cent in the US this year compared to last years’ production. The decline is dramatic for China, as production forecast to fall 1.24 mt in 2015-16 to 5.3 mt while U.S. cotton production reduced to 2.84 mt, 0.71 mt below the 2014 crop.

Moreover, ICAC predicted that the though cotton consumption expected to overtake production in 2015-16, the global supply will remain abundant. World stocks are forecasted at 20.6 mt, 58% of which will be in China at the end of 2015/16.

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Source: Agriculture Ministry

Cotton Exports (Million Bales)- India

* GOI estimate till April 15 **Projected by USDA




Spices Jeera Jeera ended the year with a loss of 7.2 per cent mainly due to subdued export demand amid lower quality production. Jeera prices tanked about 23 per cent from its high of over Rs. 18,700 per quintal in May’15 to close the year at Rs. 14,400 levels.

In 2015, jeera prices have touched all time high during peak arrival season on fear over production concerns due to unseasonal rains in Gujarat and Rajasthan during Mar-Apr’15. The prices have peaked during May’15 due to limited supplies good quality jeera. The exchange quality jeera quoted at higher levels.

After attaining higher levels, the prices falls steeply during Jun-Jul’15 due to limited export demand from India due to availability of lower quality jeera at relatively higher prices. Bright start to monsoon rain in Jun’15 too put pressure on jeera price.

Despite this fall, the prices were higher by more than 30 per cent, as compared to the start of the sowing season in Nov’14. The quality of jeera in 2015 was down due to unseasonal rains during the harvesting season in March. Arrival of new season jeera from Syria and Turkey during September and October is keeping the prices down.

Jeera prices have recovered a little during Aug-Spr’15 on forecast of deficient rains in the country, which may affect sowing. However, the recovery was short lived; due to above, rains in Gujarat and Rajasthan during the second half of September. This increased the hope for normal sowing potential for rabi 2015-16 season.

Sowing Progress and Arrivals Gujarat, the top cumin producing state, has planted more cumin until Dec 28, 2015 compared to last year sowing area. Jeera is planted about 3.46 per cent more area at 2,68,400 hectares compared to 2,59,400 hectares last year same time.

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Source: Reuters

Monthly Average Closing Price- Jeera (Rs/Quintal)- NCDEX

In 2015, jeera arrivals in Gujarat markets lower by 230 per cent. As per Agmarknet data, in Gujarat about 1.28 lt of jeera arrived during the year 2015 compared to 4.25 lt last year.

Decline production and exports In Gujarat, the jeera production declined by a record 43 per cent during 2014-15 as compared to previous year. As per final estimates for 2014-15 for Gujarat State, production is pegged at 1.97 lakh tonnes (lt) in 2014-15, compared to last years’ production of 3.46 lakh tonnes. The production in Rajasthan also affected due to untimely rainfall in March. As per Government data, about 2.41 lakh hectares of cumin crop affected in Rajasthan. India is the world’s largest jeera exporter and exports are at all-time high in 2014-15 despite higher prices. According to Dept of Commerce data, the export of jeera during first 6 month of 2015-16 (Apr-Sep) is 44,140 tonnes, which is lower as compared to last year same period. Jeera (cumin) exports have been 1.55 lt in 2014-15. Jeera exports from India are likely to decline by about 40-45 per cent to around 85,000-1,00,000 tonnes during 2015-16 compared to an estimated exports of around 1.55 lt last year.

Outlook This year there is good sowing progress of jeera in Gujarat and Rajasthan due to good weather conditions but lower soil moisture content may affect the overall yield. In the current year, the prices were above last 3 years prices but it is in continue downtrend since May might support further fall in prices due to lower demand from the stockists and exporters coupled with higher sowing.

Jeera may trade lower during first quarter of next year under normal conditions of steady supplies of commodity in the domestic market. Jeera NCDEX for Mar’16 delivery is expected to touch Rs 12,500 per quintal. Further price movement will depend on the export demand for jeera and weather during main growing states. Any weather related disturbance might provide upside shock to the prices later during and after the harvesting season. Technical Levels for 2016


NCDEX - Jeera ₹/qtl 12,200 / 10,000 17,200 / 20,000




Turmeric

Turmeric closes higher by 4.6 per cent in 2015, which surged about 46.8 per cent since its lows in Jul’15. Prices have been on an upswing in the second part of 2015 on concern over production due to erratic rainfall during monsoon, good export demand and arrival of good quality turmeric.

Moreover, reports of lower sowing due to water stress conditions in major turmeric growing state and demand from spices industries, pharmaceuticals companies and food sector continuously supported the prices at higher levels. However, during Sep’15, prices declined by about 6 per cent due to late surge in monsoon rains in Southern Peninsula and off loading of second quality turmeric by the stockists.

During the start of the year, the prices were in downtrend during the first three months due to good supplies of new season crop coupled with the want for the upcountry demand. The prices made a temporary pause at Rs 8,000 per quintal levels in Mar’15 and consolidated sideways in the range of 8,000 - 8,200 levels for about 3 months -March, April and May on reports of the lower slow arrivals, falling quality stocks and concerns over crop loss due to cyclone ‘Hudhud’ that hit Andhra Pradesh in October.

However, prices again started to fall during the period May-Jul’15, dropped to its lower levels at Rs. 7,200 in Jul’15 from Rs. 8000 due to muted export, and limited up country demand for medium quality turmeric.

Acreage affected This year during the peak-sowing period, moisture stress in observed in Telangana, Karnataka and Maharashtra as the intensity of monsoon rain decreased during July and August.

As per latest sowing data from various state departments, turmeric sowing in Andhra Pradesh is at 15,753 hectares, increase over last years’ acreage but well below the normal sowing area of over 19,000 hectares while in Telangana, turmeric is planted in 40,823 hectares, 17 per cent lower than the normal sowing area.

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Source: Reuters, Angel Commodity

Monthly Average Prices of Turmeric (Rs per Quintal) - NCDEX

Similarly, in Maharashtra and Karnataka the acreage dropped by about 25-30 per cent to 7,000 hectares and 12,000 hectares respectively. However, due to better irrigation facilities and sufficient rains, acreage in Tamilnadu increased by about 10-12 per cent compared to last year acreage to over 50,000 hectares. However, the anticipated damage due to the prolonged wet weather conditions in Tamil Nadu expected to have an impact on the crop production in turmeric growing regions.

Steady Exports This year Spice board has set a target of only 80,000 tonnes due to high domestic consumption and expectation of lower output. Last year, country exported 90,000 tonnes of turmeric compared to 78,000 tonnes in 2013-14.

According to department of commerce, turmeric exports during first six months of 2015-16 recorded at 50,916 tonnes, which is at same level as last years’ export.

Outlook In past two month, turmeric futures contract traded on National Commodity and Derivative Exchange (NCDEX) has surged more than 14.6 per cent to Rs. 9,780 per quintal from Rs. 8,532 levels due to good upcountry demand for good quality turmeric.

The bullish trend in turmeric may continue on expectation of tight supply-demand situation as the carryover stocks are diminishing over the years due to lower production trend. Further, reported damage of the standing crop due to a long dry spell in Andhra Pradesh and Maharashtra as well as the anticipated damage due to the prolonged wet weather conditions in Tamil Nadu.

Since the starting of sowing season, the uptrend in the turmeric price is intact and we expect prices to touch Rs. 12,000 per quintal on limited supplies and improved domestic demand as new season crop will arrive only next year.



NCDEX - Turmeric ₹/qtl 9,000 / 7,500 11,000 / 12,500

Agri Commodities Annual Report 2016

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Transcript of Agri Commodities Annual Report 2016