Derived BENEFITS
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The festival season, which starts in August, is an icing on the cake for commodity investors. The season starts with
Raksha Bandhan and ends with Diwali. This is followed by the peak marriage season. High demand during this period generally leads to firming of prices of many agricultural products and precious metals.
Most of these commodities give positive returns if the investment is made at the start of the period. For instance, between August and December 2011, gold rose over 17% on NCDEX, followed by pepper(16%), sugar (9%), refined soya oil(8.5%), gur (4.3%) and wheat(1.3%). However, silver, cardamom and turmeric fell 15.6%, 24% and 27.8%, respectively. A similar trend was evident in 2010 and 2009 as well (See Festive Buying).
Dharmesh Bhatia, associate vice president, research, Kotak Commodities, is positive for this year too. “The market will be bullish on most commodities such as gold, silver, refined soya oil, wheat and gur due to festive demand.”
FARM COMMODITIES
Sugar: Sugar rose from Rs 2,700 per quintal in August 2011 to Rs 2,952 per quintal in December 2011. It was at Rs 3,497 a quintal on August 25. Since June, it has risen 22%, due to deficient monsoon.
India consumes about 23 million tonnes sugar a year. Consumption in the October to December period is seven-eight million tonnes. After a dry July, vast areas of the country, including western Uttar Pradesh, India’s key sugarcane belt, got good rainfall in August. The area under the crop has also increased. So, farmers are expecting a rise in production.
If the weather stays favourable, the country may produce more sugarcane this year. “During September-October, NCDEX sugar futures may trade at Rs 3,350-Rs 3,650 per quintal due to festive demand, while during NovemberDecember the price may touch Rs 3,150 and thereafter Rs 3,025 per quintal,” says Ajitesh Mullick, assistant vice president, retail research, Religare Broking.
Refined Soya Oil: Palm oil and Soyabean oil account for 68% global edible oil trade, with soyabean oil accounting for a 22% share. Due to concerns over corn and soyabean output in the US, which is facing its worst drought in over 50 years, and deficient rainfall in India, refined soya oil prices have risen over 8% since the start of the year.
In 2012, prices of refined soya oil futures have remained at Rs 700-815 per 10 kg. Experts say domestic production of soyabean oilseeds was 11,000 million tonnes in 2011. In 2012, it is expected to be 11,400 million tonnes. Consumption was 2,745 million tonnes in 2011. In 2012, it is expected to rise marginally to 2,850 million tonnes.
Renisha Chainani, commodity analyst, capital markets (individual clients), Edelweiss Financial Services, says, “The next four months account for 30-40% annual demand. Prices are expected to remain within the Rs 770-850 per 10 kg range. Although arrivals start in October, festive demand puts upward pressure on prices till Novemberend.” On September 3, refined soya oil was at Rs 792 per 10 kg.
Sudip Bandyopadhyay, managing director and CEO, Destimoney Securities, says, “Global supply will remain limited due to bad weather. If prices break past the recent high of Rs 814 per 10 kg on a closing basis, they can shoot up to Rs 900 per 10 kg by the end of the year.”
Wheat: A combination of factors, such as high demand, fear of drought and high procurement by government have pushed up prices by over 31% to Rs 1,600 a quintal this year. Drought in the US and fears that Russia and Ukraine may ban exports have hit supply and led to firm prices.
“Severe shortage that millers have been facing has resulted in a 30-35% rise in prices of wheatbased products in the last one month. We generally see a 10-15% increase in demand. Prices are likely to rise to Rs 1,950 a quintal by the end of 2012,” says Ashok Mittal, CEO, Emkay Commotrade. Domestic demand for wheat is 82-84 million tonnes a year.
Gur: Gur is made from sugarcane. Due to lower estimated production and poor rainfall, gur prices hit a high of Rs 1,209 per 40 kg in July.
However, between 1 August and 4 September, they fell 4% to Rs 1,131 per 40 kg. India consumes five million tonnes gur a year.
Harish Galipelli, head, commodity and currency derivatives, JRG Wealth Management, says,“Improved acreage due to rain in later months of the monsoon season may ease some concerns. Gur prices are likely to stay in the range of Rs 1,100 to Rs 1,250 in the next one-two months.”
SPICES
There is a rise in demand for most spices during the festival season. However, consumption varies. For instance, the demand for turmeric starts rising in September due to festivals like Durga Puja, Dusshera and Diwali. The demand for black pepper and cardamom rises mainly before Diwali on account of higher domestic consumption and before Christmas due to export demand.
Turmeric: Prices, which had fallen sharply due to good output in the 2011-12 season, have started rising now due to low rainfall and fall in acreage. During the last year’s fes- tive season, prices had fallen 25%. This year, till September, they have risen 7% to Rs 5,497.
Traders are expecting production to be lower at 40-50 lakh bags(1 bag =70 kg) this year as against 80-82 lakh bags last year.
Naveen Mathur, associate director, commodities and currencies, Angel Broking, says, “We expect turmeric to touch Rs 7,500 per quintal by end-2012.”
Black Pepper: Prices, which have fallen since the second week of August 2012 due to imports and low demand for the Indian variety, may bounce back as demand recovers before the festive season.
Since the start of the year till July 2012, prices rose 26% to Rs 42,247 per quintal. However, between 13 August and 9 September, there was a 5.3% fall to Rs 40,823 per quintal. Experts are bullish on account of festive season and export demand.
CP Krishnan, wholetime director, Geojit Comtrade, says, “Spices like pepper, cardamom and turmeric will see upward price movement during the festive season. In 2012, pepper is likely to trade at Rs 44,000 per quintal.”
Global pepper production is expected to rise 7% to 3.20 lakh tonnes in 2012 compared to 2.98 lakh tonnes in 2011.
Cardamom: Since the last week of July, October futures of cardamom on MCX have slid over 21%. They were at Rs 1,035 per kg on September 3. However, it seems prices may recover gradually due to festive season demand and poor rainfall in Kerala, which accounts for 78% of the country’s production.
Mathur of Angel Broking says,“Expectations of lower output amid weak monsoon in Kerala may support prices. Export demand is likely to emerge ahead of Christmas and winter. Prices are expected to touch Rs 1,250 per kg by the end of 2012.”
PRECIOUS METALS
Diwali is preceded by Dhanteras, when buying gold and silver is considered auspicious. This usually augurs well for prices.
However, Amarsingh Deo, head of commodities and currency, Aditya Birla Money, says the demand for precious metals is likely to remain subdued during this festive season. “The demand for gold and silver may not be robust following poor rainfall in the first two months of the monsoon season. Drought in many areas of the country will affect rural incomes.”
Rural India accounts for more than 60% demand for gold.
Gnanasekar Thiagarajan, director, Commtrendz Research, has a different view. “If the rupee remains above 55 against the dollar, gold can touch Rs 33,000-33,500 levels (per 10 gram). If it stays below 55, it can touch Rs 32,500 by the end of December.”
According to the World Gold Council, gold investment and jewellery demand in India fell to 181 tonnes in the second quarter of 2012, down from 294 tonnes during the same period last year. The demand for gold jewellery fell 30% to 124 tonnes. Investment demand fell 50% to 56 tonnes.
Vivek Gupta, head of research, CapitalVia Global Research, is also bullish on gold and silver. “On the MCX, silver will test Rs 66,500-66,850 levels if it crosses Rs 67,000. It will test the previous highs of Rs 72,000 and Rs 73,000 again.