The limit-down session means, the prices are restricted to fall only by Rs 600 per quintal from the previous close. Later, market witnessed some correction at the beginning of this week. The correction was short-lived and resulted in a lower close.

The wide gap between domestic and international prices is the main reason for the sharp decline in pepper exports. At present, Indonesia is the only source for pepper in the international market. The Indonesian price is around $3900 per ton, while the Indian pepper prices are at a premium of around $300 a ton over international prices (it was around $500 to $600 a week ago).

Weather god has played his role on deciding the pepper prices. At the beginning of the year, the summer rains during Jan/Feb and the subsequent heavy rains in June had adversely affected the pepper crop in the high ranges of pepper growing regions of Kerala. Due to early rains in Jan/Feb, the pepper plants began flushing earlier and at the time of pollination, heavy rains turned out to be unfavourable. To worsen the situation, a dry spell prevailed during the month of July in the pepper growing areas in Kerala's high ranges during the berry setting stage, which brought down forecasts of pepper output.

The monsoon rains fell 30 per cent short of those witnessed during the normal times. All these factors have resulted in pessimistic crop estimates till the end of July 2000. The crop output till the end of July was seen at around last year's output of 45,000 tons, against 66,000 tons in 1998-99, thereby resulting in consecutive poor crops. The poor management of plants by small growers and low productivity (average being 300 kg per hectare) has led to forecasts placing pepper crop on the lower side.

The lower crop estimate has provoked the Indian farmers from holding back the stocks and the market witnessed poor participation before the fall in prices. The equations have changed fast with the arrival of rains. The concerns of the dry weather are disseminated with the arrival of the rains in the key pepper growing regions of Kerala during this week. This has resulted in the revision of the crop estimates. On expectations of good harvest in the next season, farmers are off-loading their stocks, fearing drop in prices. On arrivals of stocks of pepper into the market and weak off-take, pepper prices have been hit.

The weakening exports have further pressurised the prices. Indian pepper exports have fallen considerably. High global output and high Indian prices are likely to render pepper exports from the country uncompetitive. The domestic pepper industry is pressurising the Government for reduction of import duties on pepper. They want the Centre to allow duty-free import of pepper for re-export and reduce import duties to bring parity in domestic and international pepper prices.

Apart from the policy, various factors are disturbing the pepper industry. Many small-scale growers still depend on rains, as they cannot afford scientific farm management practices. Also, the information dissemination is not proper. Crop forecasts and related market driving factors are not available at the proper time, affecting the price stability. The futures markets are to establish the intrinsic value of the underlying asset (commodity). The poor infrastructure for information compilation and dissemination due to the passive role of the governmental agencies and lack of private participants in providing information is hindering the futures makets in reaching its well-set goals.

Technical outlook: The trend in October futures traded at IPSTA is in a bearish mode. The bar chart witnessed an ascending triangle from July 11 to Aug 7, 2000. Generally, the odds favour an upside break out for the ascending triangle. The break out in any triangle occurs before 1/2 to 3/4 distance from the base to the vertex. Here in pepper futures, market traveled all the way to the vertex of the triangle. This has resulted in a down side break out and the market came down heavily.

This week, market touched the resistance at 50 per cent Fibonacci retracement at 19,875, for the fall from Rs 20,800 to Rs 18,950. Therefore, market is expected to continue its falling trend and market has a fair chance to make a new low. The support for the market is at Rs 18,825 and then at Rs 18,500. The resistance for the market is at Rs 20,100.

(Source www.CommodityIndia.com)