GUAR SEASONAL REPORT - Karvy Commodities · crop in India which is generally sown ... monsoon...
Transcript of GUAR SEASONAL REPORT - Karvy Commodities · crop in India which is generally sown ... monsoon...
7th June, 2011
HIGH LIGHTS:
Monsoon Prospects
Acreage Projections
Production Estimates
Trade Policies
Seasonality
Ratio Analysis
Technical recommendations for guar seed and guar gum:
NCDEX STRATEGY RANGE TARGET STOP LOSS
June 2011 Sell 3270-3300 3050-2850 3410
July 2011 Sell 3350-3370 3140-3000 3480
June/July 2011 Sell 10500-700 8800/8000 11600
GUAR SEASONAL REPORT
“After such a historic rise in prices of guar seed and gum, all the market
participants are looking forward for where the market will head from here. Good
progress of the monsoon and the expectations of rains to hit the major guar growing
regions by first week of July. The projections about the increase in acreage of guar
by 15 to 20 per cent might impact the market sentiments. China has imposed an
import duty of 7% and 15% on guar splits and gum powder respectively from India.
On contrary, there is no import duty for Pakistan.”
Review:
Guar seed and guar gum futures
touched their life time high
during the year 2011. The guar
seed and gum prices have gained
by around 54 per cent and 105
per cent respectively. The prices
surged to the lifetime high as
guar gum and seed touched
Rs.10538 and Rs.3351 levels
respectively during May 2011.
The arrival season (November-
December) of the commodity
attracted more export orders
across the spot markets. The
recovery in the global economy
after the slump during 2009
resulted in higher crude oil production. The guar gum which is mostly used in the crude
oil extraction purposes resulted in the good export orders of the guar gum during the
peak arrival season. The prices found cushion from the guar gum exports which rose
substantially during the CY-2010-2011. The crop damage in the major guar growing
regions across Pakistan led to the shift in export demand to India. Thus the prices rose
substantially during the Nov ’10- May’11 period. The crude oil prices crossing the 100$
mark in the international markets during the March month due to Libyan political
concern, boosted the demand for guar gum. The demand from the stockists and the
millers also rose substantially during this period; on anticipation of the demand to
continue in the long run. Though the fresh export demand was absent after the second
half of March, the perception of the demand to increase still drove the prices to their life
time highs. Some sharp corrections were also witnessed amidst this rally as and when
the international agencies predicted the monsoon forecast in India.
At a certain stage, the prices of the commodity sustained much above the actual value of
the commodity which could have been driven by speculators. After such a historic rise
in prices of guar seed and gum, all the market participants are looking forward for
where the market will head from here. So this report carries KCTL’S view for guar seed
for the upcoming sowing season.
Seasonality:
The seasonality in agri commodities includes price seasonality and the crop seasonality
as per their price movement and the cropping pattern over the years. Guar is a Kharif
Fig 1: Futures price movement (Nov’10- May’11)
2000
2200
2400
2600
2800
3000
3200
3400
3600
3000
4000
5000
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7000
8000
9000
10000
11000
Gum Seed Price
Source: Bloomberg and KCTL Research
crop in India which is generally sown during June-July months and harvested in
November-December. The scenario is the same in Pakistan, the second largest producer
of guar seed in the world.
Plantation
Harvest
Correlation of guar production and rainfall
Kharif being the sowing season for guar seed the major price influencing factor is the
progress of the monsoon. The statistical relationship between the rainfall and the
production is negative while the practical scenario is very different. The numerical
analysis might not include the sentimental impact of the rainfall on the prices which
occurs due to the traders’ perception about the rains. Along with the onset, the spatial
and temporal distribution of the monsoon also has major impact on guar price
movement. Thus the market dynamics plays an equal role in the guar price movement
along with the fundamental factors.
Production Rainfall Area
Production 1
Rainfall -0.646679109 1
Area 0.387120518 -0.527823697 1
Figure 2: Price seasonality Guar seed in India
Source: Bloomberg and KCTL Research
CROP CALENDAR
AREA:
The acreage under guar seed during the current year is expected to increase by around
15-20% compared to the last year. The acreage might be slightly above 3 million
hectares compared to 2.6 million hectares during last year. The returns fetched by
the commodity during the last cropping year might result in wide spread of the acreage
along with good monsoon prospects. The damage occurred in the cotton growing
regions might also result in conversion to guar acreage as the cost of re sowing in cotton
would be higher. The supportive weather condition for the monsoon to progress well
across the southern peninsula currently has opened up brighter prospects of the
monsoon across North Western regions of Rajasthan which might result in higher
acreage.
The sowing prospects across the Pakistan regions is also expected to progress well as
the south west monsoon is also forecasted well across Pakistan. Thus during the current
year a normal acreage under guar seed can be expected which might influence price
movement in Indian markets.
PRODUCTION
Production of guar is expected to be marginally above (78-80 lakh bags) as
compared to the average production which being 77 lakh bags per year. The rise in
acreage by 15-20% might not have major impact on production, thus retaining
production levels around the normal average in the last ten years. Some drastic changes
in the production can only be attributed to the distribution of the rainfall.
MONSOON PROSPECTS:
The south west monsoon arrived at the Kerala coast two days ahead of the projected
schedule. The current weather conditions are also supportive for the good progress of
the monsoon. As on date the monsoon has reached the Mahratwada regions and the
southern peninsula. Furthermore, the monsoon is expected to reach Rajasthan regions
by 20th of June and at the earliest. The rains might hit the major guar growing regions by
first week of July. The rains are expected to be normal during the current season which
could result in supporting the sowing prospects. The rain of 250-400 mm is expected
across the major guar producing regions which could help the crop growth. The
adverse effect of the monsoon cannot be ruled out for the current year, as the
international weather agencies are predicting good rains due to effect of La Niño
conditions.
TRADE POLICIES:
Recently, china- second largest importer of guar from India has imposed an import duty
of 7% and 15% on Indian guar splits and gum powder respectively. On contrary, there is
no import duty on Pakistan. This implies the re shift of 20% of export demand which
came in last year from India to Pakistan which due to the crop damage in Pakistan
during the last year.
GUM-SEED RATIO
In last 5 months average of ratio of guar
gum to seed is 2.87. The ratio has
increased to 3.19 which is so far the
highest in last 7 months. The movement
of the ratio of gum to seed has been on its
march towards north wards from the
yearly average of 2.4 levels during the
year 2011. The change in ratio is
determined by the individual demand for
gum and seed. This drastic increase in the
ratio was a result of surge in prices of guar seed and gum which was driven by the
export demand and speculative movement.
Further, we are expecting the ratio to decrease in the short run and touch its normal
levels as the demand is expected to gradually decline for guar seed across the spot
markets. The rise in guar gum due to inflated demand is not likely to continue further.
Thus prices would decline gradually leading the ratio to be at normal levels.
OUTLOOK:
The earlier on set of the monsoon at the Kerala coast is affecting the guar market
sentiments even though it has no direct relevance. The supportive weather conditions
for the progress of the monsoon are further expected to have a negative impact on the
prices. The monsoon showers are ready to soak the southern peninsula in a fort night
and reach the rajasthan regions by June 20th. The upper air circulations are also
suggesting the further good progress of the monsoon and the rains are expected to hit
the major guar growing regions by first week of July. The prices are expected to feel
pressure of rains and trade down side in the next 2-4 months. The projections about the
increase in acreage of guar by 15 to 20 per cent might impact the market sentiments.
The possibilities of the increase in acreage in guar seed is due to the sowing of the gaur
in the crop damaged regions under cotton. The physical market participants liquidate
their stocks across the spot markets which might pressurise the spot prices and have
the same impact on the futures. The absence of the demand while the arrival from stock
hit the spot markets might also result in down trend in the prices. The south west
monsoon not only supporting the production but also the same effect can be seen on the
guar growing regions across Pakistan. The crop is expected to be normal unlike the
drastic damage during the last crop year due to floods. The export demand which
shifted from Pakistan to India might not retain during the current crop year based on
the good sowing and production prospects expected there also. China has imposed an
YEAR MAX MIN AVERAGE
2005 3.15 2.12 2.63
2006 2.87 2.32 2.56
2007 2.74 2.34 2.51
2008 2.72 2.23 2.45
2009 2.35 1.98 2.13
2010 2.6 1.82 2.16
2011* 3.19 2.57 2.87
*Jan-May’11
import duty of 7% and 15% on Indian guar splits and gum powder respectively. On
contrary, there is no import duty on Pakistan. This preferential move as China is the
second largest importer of gum in the world might affect the India’s share of exports to
China. This might further weaken the prices in India in the short run along with the
expected higher acreage and the good production prospects. Later on the prices tend to
rise gradually as the crop harvest starts off across the irrigated guar growing regions
and the export consignments trickle in.
Technical Analysis
Guar seed prices are trading higher for the second consecutive month. Prices are witnessing
resistance at 3409 levels (previous month’s high). Only on breach and sustained trade above
may escort the prices to further highs. However, technical are rendering a bearish approach on
this commodity. Market is witnessing RSI Divergence along with price rise which is shown in
the chart 1. This can also be called as a Negative Divergence and suggesting lower potential. If
we look at chart2 prices are witnessing a rising Wedge formation on the weekly chart
suggesting downside potential. Any weekly closing below 3200 levels would confirm the down
trend. If we talk about the chart3 Gann theory suggest prices are likely to take correction on
the lower side as prices are witnessing 1x2 line resistances which is 63.75 degrees. On
sustained trade below is likely to test 1x1 lines which are 45 degrees. In the chart4 the Moving
Average principle suggesting a contraction as prices are witnessing a wide range between the
short and medium term EMA’s of (8,21&34 months). The principle of Fibonacci Projections
state that prices are witnessing crucial resistance at 3420 levels which is 100% projections of
the range 1440-2925-1935 levels. On sustained trade below may escort the prices to further
lows. Looking at the above analysis and relating these to price seasonality we believe Guar seed
prices to trade on lower in the coming months.
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