'Bullish on NCDEX Castor seed futures on lower sowing in Gujarat, Rajasthan'

Sumeet Bagadia

Castor seed commonly known as 'Rendee' in Hindi is a Kharif Crop sown/grown in the monsoon season during the months of July to September. The major states constitute Gujarat, Rajasthan and Telangana and the usual new crop harvesting period happens from December in Telangana and March & April months in Gujarat and Rajasthan states of every year.

Sowing of Castor seeds depends on the monsoon season and the distribution of rainfall in various regions. As compared to other Kharif crops, it requires relatively less rainfall and can be grown in dry and arid regions. Castor seed is also a 9-month crop from its sowing till the completion of its harvesting. Price also plays a critical role that would determine how much sowing the farmers are ready to do in the above period. Higher price is generally forecasted to increase sowing of castor seed while lower prices can possibly lead to crop switching to other crops such as Cotton and Guar Seed in the earlier mentioned states respectively.

Higher yields in the soil support the castor seed crop and the crop can grow as tall as 9-10 feet in height. Medium yields can help the castor seed crop to grow to a height of 7-8 feet height, while lower yields in the soil boost growth up to 5-6 feet in height. Castor seed is a non-edible oilseed and is used majorly in the industrial sectors after extracting castor seed oil in various industries of India. Castor seed meal is the residual of the castor seed after extraction of castor oil and it is mainly used for organic fertilizers. Castor Oil and Castor meal are exported outside India especially to countries like China and the US. Other export destinations include the European Union.

NCDEX Castor Seed futures price which has been trading bullish during June so far, owing to supply tightness in the domestic market as farmers are holding stocks amid coronavirus fears and lockdown situations in the states of Gujarat and Rajasthan. Moreover, prices have also witnessed an uptrend amid seasonal buying in the domestic markets in the months of June-July. Furthermore, the expectancy of higher exports amid easing worldwide lockdown has also sentimentally driven the prices higher. By June 19, NCDEX Castor Seed futures closed at Rs 3,798 per quintal, higher by 6.33 percent compared to Rs 3,572 per quintal reported on May 29.

Fundamentally for the coming month, we are expecting NCDEX Castor seed futures to trade bullish as the current year (2020-21) sowing acreage is estimated to be lower compared to the previous year by 8-10 percent in Gujarat and Rajasthan. So far, the sowing has begun only in Telangana and peak sowing in Gujarat and Rajasthan is expected to pick up by July 15 onwards.

Forecasts of lower castor seed sowing acreage are majorly due to higher production in the previous year 2019-20 of 18 lakh tonnes compared to 12 lakh tonnes of the preceding year 2018-19. This eventually led to higher carry forward stocks of approximately 9-10 lakh tonnes in 2019-20 compared to 3.75-4 lakh tonnes in the year 2018-19. Global exports of castor seed oil and meals had been lower due to worldwide lockdown, with a small incline in exports to China; which had also led to higher castor seed closing stocks.

Looking ahead, domestic demand for organic fertilizers is expected to see further incline as farmers have already begun with the peak kharif crop sowing and exports are expected to further pick up with easing lockdown situations worldwide; which is also expected to support Castor seed futures in the coming month. Some trader sources' in Gujarat forecast for 20-25 percent decline in castor seed sowing acreage in 2020-21, but then, the actual decline in acreage can be witnessed only after the sowing has begun in the above states. Overall, we expect a bullish trend in NCDEX Castor Seed futures for the month ahead.

Overall, we expect a bullish trend for the month ahead and recommend buying in NCDEX Castor seed August futures at CMP Rs 3,906 per quintal for a target price of Rs 4,400 per quintal and maintaining a stop loss below Rs 3,650 per quintal.

The author is Executive Director at Choice Broking.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.