After a good 2009, commodities may witness a weak year

In 2009, almost all agricultural commodities registered a significant rise in prices, in spot market as well as in futures. Commodities such as turmeric witnessed a meteoric increase in its prices.

The upsurge was primarily due to weak monsoon in the country and the change in global weather pattern.

Last year, the country saw the worst monsoon in the last couple of decades with rainfall deficit of 23% of the long period average. Meanwhile, weather in countries such as Argentina, which is a major supplier of grains and oilseeds, saw extreme conditions.

According to Sharekhan’s commodities special year-end review, though kharif crop production was hit by weak monsoon last year, the output loss was mitigated to some extent by rains before rabi season that improved the crop prospects. The kharif production losses were also balanced by the 40-million tonne grains stock with the government.

The surge in agricultural product prices seen in 2009 could stem in 2010, as production prospects of rabi crop appears bright. Wheat is expected to see record production this year on higher acreage and supportive weather. And the production of major spices such as chilli, coriander, turmeric and pepper is also estimated to increase in the coming season on higher acreage.

Oilseed prices is also expected to soften in the coming months, as global production of oilseeds would see a 15% rise on the back of fresh supplies from South America, a major supplier of oilseed.

Angel Broking in its review says that rally in agro commodity prices in 2009 has been extraordinary with prices at their multi-year highs due to supply concerns.

Food inflation hit a 10-year high of almost 20% for the year till December 5, due to demand-supply mismatch and poor monsoon. Rising food prices contributed to a faster-than-expected 4.78% surge in the wholesale price index during November.

Along with the prices, volumes at the National Commodities and Derivatives Exchange (NCDEX), India?s biggest farm commodity futures exchanges, also surged by more than 100% in the calendar year.

Sharekhan notes that turmeric turned out to be the star performer of 2009, giving returns of about 165% in the physical markets.

However, with the cyclic pattern in agricultural commodities, prices tend to rise or fall depending upon supplies and demand.

Sowing this year has expanded and a crop size of 52 lakh bags (1 bag=70kg) is forecast, which is 26% higher than that of 41 lakh bags last year.

Fresh crop supply would begin in January with a carry-over stock of just 2/2.5 lakh bags, however, international demand destruction at high rates and seasonal pressure would be noticed in the first two quarters. Turmeric being a six-month crop is sown around June/July while harvesting begins in January with arrivals peaking in March.

Among other spices, though global pepper production is expected to be 3.5% lower this year, production in major exporting counties mainly India and Vietnam is forecast to rise in the coming season.

Indian crop size this year is forecast at 55,000 tonne, 10% higher than last year. Vietnam crop size is forecast to be around 95,000 tonne, similar last year.

New crop from India would arrive from January while that from Vietnam would land from February, adds Sharekhan.

Angel Broking?s report says that guar prices broke its record of all time high of Rs 2,445 per quintal (near month contract) since its launch on NCDEX and touched a high of Rs 2,872 per quintal. The reason behind the sharp rise in the guar prices was the delayed and below normal monsoon which has led to a drastic fall in guar acreage and thereby output (60% decline) in the crop year 2009-10 (October- September).

With burgeoning stocks and price correction by around 50% in the international markets, wheat prices in India ironically grew by 20% thanks to the government policies.

As a matter of fact, government procures around 30% of the total wheat produced in the country. However, with little stock in open markets and open market sale price of wheat quoted in the range of Rs 1,390-Rs 1,790 for wheat delivered at different locations, price rose during the last couple of months. However, with piling stock of wheat with the Food Corporation of India, the government is now forced to release excess stocks at a discount of Rs 200 from earlier mentioned price of Rs1,390-Rs 1,790, which will have an impact on the price in the coming days.

Sowing till date is reported at 231 lakh hectare, 5 lakh hectare higher than that of 226 lakh hectares in the corresponding period of the last year.

Wheat stock with government as on December 1, 2009 is reported at 25 million tonne, more than double the requisite stock of 11 million tonne, says Sharekhan, which will further prevent any flare up in prices.