Castor Seed Medium Term Report

Indian castor seed market witnessed a positive trend during the first three months of 2017 on account of weaker production. Besides, higher export demand for Indian castor oil and castor meal resulted in one side rally on castor seed prices. However, prices have witnessed a downtrend in the first quarter of FY 2017-18 due to subdued domestic demand and on expectation of above normal monsoon rainfall. For the medium term, uptrend is expected in castor seed futures on expectation of significant crop damage in the upcoming season as well as anticipated good export demand for Indian castor derivatives. KCTL Business Analytics Wing is releasing medium term report, which will guide the investors to invest in the medium term.

Price Movement

Source: NCDEX, Bloomberg, KCTL BAW

  • Indian castor seed market was in bearish trend during the period from April 2017 to June 2017 mainly because of sluggish overseas demand for meal as well poor demand from the domestic market
  • During the period, castor futures prices declined by approximately 17% and tested a yearly low of Rs. 4153 per quintal
  • Further, expectations of considerable increase in cultivation area under castor due to better returns in last season and expectation of favourable monsoon in the current session supported castor futures prices to trade lower
  • After slipping to six month low, prices have seen  decent recovery from middle of June’17 on tight  supplies of quality seeds mainly in north Gujarat region
 
Balance Sheet

  • For 2016-17, India’s castor seed production was estimated at 10.55 lakh tons, down 26% Y/Y on reduced area under castor cultivation
  • The year 2016-17 started with bigger carryover stocks of 5.83 lakh tons
  • Total supply of castor seeds in 2016-17 is estimated at 16.38 lakh tons, down by 3.47% Y/Y due to lower production
  • In FY2016-17, Indian castor oil and meal exports had decreased by 12% Y/Y due to lower consumption demand and higher prices
  • Domestic consumption was estimated to be more or less same around 1.16 lakh tons
  • Hence, despite lower production in the FY2016-17, ending stocks were estimated at around 6.42 lakh tons, up by 10% Y/Y mainly due to declined export demand for oil and meal.
 
Market-wise Arrivals

  • Castor seed market faced tight supply situation during April-July’17 as total arrivals volume tumbled by 41% Y/Y
  • Largest fall in arrivals was reported in Thara market, down by 67% Y/Y as farmers/stockiest restricted selling their produce/stocks in expectation of better prices in the future
  • Similar trend was reported at Deesa and Palanpur market where supplies declined by 35% Y/Y and 44% Y/Y respectively
  • In Gujarat, overall arrivals were registered around 141,722 tons in the mentioned duration, which was down by 41% Y/Y
 
State-wise Sowing

  • IMD had forecasted 96% of the LPA monsoon rainfall for the country as a whole in the month of April, which was later revised to 98% in June
  • For Central India, which is the key castor seed growing region, IMD had forecasted monsoon rainfall of 100% of the LPA
  • Sowing activities commenced from middle of June’17 in a slower pace, which has improved extensively after gain in prices at physical market and on good rainfall in Gujarat, Rajasthan and Andhra Pradesh
  • According to the latest data, area sown in Gujarat was at 1.441 lakh hectares, up by 279% Y/Y and it is 53% of total seasonal area while in Rajasthan, sowing is complete in 0.662 lakh hectares, higher by 178% Y/Y which is 24% of total seasonal area

 

Export Performance: Castor Oil

  • India is the largest exporter of castor oil and has a market share of about 85-90%. China and Brazil are the second and third largest producers of castor seed oil in the global market contributing over 6% of the world exports
  • During FY2016-17, Indian castor oil exports declined by 11% Y/Y to 4.85 lakh tons
  • Weakened demand from the international market due to higher prices of castor seed in domestic market led to lower exports
  • However, in the first two month of FY2017-18, total castor oil exported was around 1 lakh tons, which is up by 2% Y/Y on higher consumption demand from US, Netherland, Russia and Japan
 
Export Performance: Castor Meal

  • India being the top producer of castor meal enjoys a top position in castor meal trade in the international market
  • Despite lower FOB prices, total castor meal export from India has shrunk by 14% Y/Y in FY2016-17 due to sluggish demand from major importing countries
  • During the first quarter of FY2017-18, India had exported 0.84 lakh tons of castor meal, increased by 4% Y/Y
  • Japan, Taiwan and France were the top importers of Indian castor meal for the 2016-17
 
Export Performance

Source: SEA and KCTL BAW

  • During the first three months of FY2017-18, castor meal exports from India increased 4% Y/Y to 84,415 tons on account of lower FOB price, which is down by average 14% Y/Y
  • Due to higher consumption demand from major importing nations, Indian castor oil export volume and value had gained 2% and 49% Y/Y respectively during first two months of 2017-2018

 

Fundamental Outlook

Castor seed futures are likely to trade on positive note in the medium term tracking following fundamental factors

  • Despite of lower production during FY2016-17, supply side is expected to be comfortable with a decent beginning stocks on the back of lower export volumes in 2016-17; however, recent heavy rainfall in Northern Gujarat and South-East region of Rajasthan has resulted in flood situation which has raised the quality concerns of the stocks stored in the warehouses
  • On demand front, aggressive purchasing activities by the stockiest as well as crushing units for creating inventories of quality seed may also support the prices positively
  • Castor oil export are expected to hold a positive outlook in FY 2017-18 on account of increasing application of castor derivatives in pharmaceutical, soaps, paint, varnish, lubricants and plasticizers based products
  • Since the FOB prices of castor meal witnessed a downtrend, the export demand is expected to peak up in the coming days
  • Sowing activities, which had commenced on slower pace in the mid of June, has picked up pace following favourable rainfall in major growing regions; however, remarkable crop damage is expected in Gujarat and Rajasthan due to excessive rainfall
  • Rainfall in the month of September and October should be adequate; however heavy rainfall may damage the standing crops before the commencement of harvesting activities
  • We expect area under castor to raise by 10-12% Y/Y in Gujarat and Rajasthan as farmers are shifting to it from pulses on better realization while acreage is likely to decrease by 15-22% in Karnataka, Maharashtra and Andhra Pradesh as farmers are shifting to cotton and turmeric in expectation of better prices in the future; hence, overall acreage under the crop is expected to more or less same compared to last year

Hence, considering above mentioned factors, we recommend buying the castor seed futures for the medium term

Technical Outlook

  • After re-lunched of castor seed futures in January’17, it was seen some toughen and made high of Rs.5190 in the month of April’17
  • In the month of June’17 price took support at 200 SDMA and 76.8% fibonacci retracement level on daily chart; however, down trend broke resistance line in the same month and successively trade above
  • The momentum oscillator stochastic is trading at 18.70 level and MACD is trading  above zero line on daily chart
  • Price is likely trade above of short term as well as long term moving averages on daily chart
  • Immediate support seen at Rs.4380 and major support at Rs.4170 while resistance is now observed at Rs.4870/5300

Note: Recommendation is in Sep contract while executing trade in next available contracts levels to be adjusted based in premium/discount price to the September contract 

 

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Posted by Content Publisher Monday, August 21, 2017 3:16:00 AM Categories: Medium Term Report

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