After touching its lowest levels in five years during February 2016, guar seed prices have jumped about 21 per cent until July. The guar seed price on National Commodities and Derivative Exchange (NCDEX) touched lows of Rs 2,957 per quintals and surged to the highs of Rs 3,933 per quintals. However, the prices have now corrected more than 9.3 per cent to currently trading at Rs 3,567 levels.

Earlier in the year, the prices have seen some uptrend during March-April mainly due to lower arrivals as farmers were not interested to sell at lower prices. Moreover, good domestic demand for churi-korma, mainly use for poultry and cattle feed, too supported the prices.

However, the prices then started to decline in second half of April, as Indian Meteorological Department (IMD) has forecasted above normal rainfall during the monsoon. The prices were pressurised further on limited export demand. India accounts for more than 80 per cent of the world’s production of guar, followed by Pakistan. Guar is cultivated in the states of Rajasthan, Haryana and Gujarat during Kharif season with estimated production of 25 – 30 lakh tonnes (lt). In last two years, guar farmers have not able to get optimum profit. Guar prices have fallen more than 30 per cent in a year while the prices of pulses have nearly doubled over the same period. The area under guar seed production in India, the biggest producer, used to extract shale gas in fracturing, may drop by about 20-25 percent in the current kharif as the area may divert crops that are more profitable.

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Rajasthan, Haryana and Gujarat are the main guar sowing states in India. As per the latest update, farmers in Rajasthan have planted guar in 20.42 lakh hectares (lh) till August 8, down by about 45 per cent compared to last year acreage during same period. Similarly, in Gujarat, guar area drops by 20.5 per cent until 08 August to 116,700 hectares. Last year area covered was 145,000 hectares.

Guar Seed acreage nearly falls 73 per cent in Haryana. As on July 18, guar seed sown area was only 91,000 hectares in the state against 3.39 lakh hectares until July 20, 2015, according to agriculture department reports. This indicates that the area of guar expected to be lower this kharif season as farmers shifting to more profitable crops like pulses, oilseeds and cotton. Thus, the production of guar seed is set to decrease in 2016-17 to 15-18 lakh tonnes due to drastic reduction in acreage to about 20-25 lakh hectare from to 48 lakh hectare last year, the demand is still the factor influencing the price movement.

Subdued demand for guar products from fracking industry in the US have been pressurising prices in last two years. The export in first two month (April-May) of financial year 2016-17 is not encouraging while during last year guar product exports have touched the lowest in 6 years.

Outlook
Guar complex prices are at the lowest levels in five years and may continue to weigh down due to want of export demand. Moreover, good monsoon forecast, higher carryover stocks and good supplies in the domestic market also paint a bearish signal for guar in short to medium term. We expect NCDEX Oct’16 contracts for guar seed may trend lower in short to medium term perspective to touch Rs 3,400 per quintal (CMP: 3,568). The prices may surge towards Rs 4,000 levels in case of higher export demand.

(The author is associate director, commodities and currencies, business equity research & advisory at Angel Broking)