Good exports and deficit rains are likely to push the prices high. The combination of erratic weather and low returns from chilli may force farmers to substitute chilli with some other crop, Faiyaz Hudani of Kotak Commodity Services said. Kotak reports that chilli prices are expected to trade firm on buying at lower levels. Lower price levels can lead to fresh buying on the futures counter. Demand is said to be stable in the spot market. Issues with Pakistan chilli crop can be supportive for Indian chilli, Kotak sources added.
Export of chilli is a key factor in pricing of the commodity. Higher exports always translate into higher domestic prices due to the lesser availability of the commodity. Spot price for chilli as on Friday evening at the Guntur market stood at R5,800 per quintal.
Chowda Reddy, senior analyst with JRG Wealth Management is also bullish on the commodity on deficit rains. Overall chilli acreage is likely to come down due to lower rains in the farming region. The returns from chilli was also low in the last season and farmers are likely to sow lesser area this season, he said. Chilli production averages around 13.5 lakh tonne annually and Andhra Pradesh accounts for over 7.5 lakh tonne. India is the leading producer of chilli contributing close to 43 % of the world production followed by China (8.6 % ), and Peru (5.6 %).
However, Naval Khaitan, a prominent trader and exporter from Guntur is bearish on the market due to the higher level of stocks. The stocks in the Guntur market is 20 lakh bags higher compared to the previous year. Rains are not a major problem for chilli as they can survive with occasional rains. The concern is the cyclonic rains which come in the last quarter of the year which damages the crop, he said. He feels that the market would decline after the Ramadan festival and believes that the only positive factor is the demand from China.