On NCDEX, guar seed futures will trade bullish as the global oil prices are expected to climb due to supply cuts by the OPEC member countries.
Guar seed, also known as 'guar' in Hindi, is a kharif crop sown or grown in the monsoon season during the months of June to August. The major states constitute Haryana, Rajasthan and Gujarat and the usual crop harvesting period is from October to December.
Sowing of guar depends on the monsoon season and the distribution of rainfall in various regions. Good rainfall, with good amounts of water content in the topsoil and subsoil, improves the sowing and eventually increases the production during the harvest period.
Price also plays a critical role that determines how much sowing the farmers are ready to do. A higher price is generally forecasted to increase sowing of guar seed while lower prices can possibly lead to crop-switching to moong, soybean, castor seed, etc.
Guar gum, a by-product of the guar seed, is also a well-known commodity in the domestic market. Unlike the seed, gum is majorly exported in the form of guar gum split and guar gum powder.
Guar gum powder is mainly sold to oil-producing countries like the United States that use it for drilling and extraction of oil. Both guar seed and gum listed with NCDEX platform and are the top commodities traded in the agriculture futures market.
NCDEX guar seed June future price has been earlier trading sideways to bullish in May amid OPEC supply cuts and fresh buying due to lower prices.
However, overall low domestic demand and exports of gum has limited major uptrend. Support from the global oil prices even in the current pandemic coronavirus also led to sustained upside movement in both Guar seed and Guar Gum prices in the past couple of weeks.
By May 15, NCDEX guar seed price closed at Rs 3,638 per quintal, higher by 2.19 percent compared to Rs 3,560 per quintal reported on April 30.
Fundamentally, for the month ahead, we are estimating NCDEX guar seed futures to trade bullish, as the global oil prices are forecasted to remain higher due to supply cuts by the OPEC member countries till the end of July.
Easing of lockdown worldwide is forecasted to also improve global industrial and manufacturing activities in the coming weeks.
Moreover, the government of India will allow opening up of some industries in rural areas and semi urban areas in the lockdown phase 4, which will also increase the demand in the domestic markets.
Prior to the monsoon, traders are expected to stock guar seed and guar gum as usual arrivals in the monsoon period is relatively lower compared to the other months due to sowing season.
Furthermore, the stock in the hands of farmers and traders is expected to be around 5-6 lakh tons, lower compared to 9-10 lakh tons of the previous year. Hence, we are expecting bullish trend in NCDEX guar seed futures, with sowing corrections for the month ahead.
The author is Executive Director at Choice Broking.
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