Here is why agri commodities are expected to fall further

After rallying for many months, almost all the agricultural commodities witnessed sharp profit booking at the end of the week gone by.

Many agricultural commodities - like oilseeds, edible oils, spices, pulses - recently hit multi-year highs on hopes of revival in demand during festival and marriage season against a supply constrain. This had kept agriculture commodities on a firm footing for past many months.

As a result, NCDEX Agridex Index first month futures, which wer ruling near 1,170 in first session of this year, have surged by around 30 percent since then and have reached above 1,500 level in the week gone by.

Soybean, which initially struggled as compared to other edible oils, has gained the most since the start of 2021. It has posted a whopping 65 percent gains. Turmeric, was the second best performing commodity, registering over 40 percent gains during the same period, followed by Chana (27 percent), MCX CPO (25 percent), Mustard (21 percent), Refined Soy oil (19 percent).

However, resurging COVID cases in the country amid second wave of pandemic has again veered market focus towards demand destruction from supply shortages. As per World meter data, new COVID cases across India on April 22, went above 3.3 lakh in a single day, which is the highest number of fresh cases reported by any country in the world. Following a humongous increase in COVID cases, many states have imposed restrictions on movement (some states going for only night curfew, while some have imposed stringent lockdown) to curb proliferation of infection in the country. This might have an impact demand for agriculture commodities considerably.

Related stories

Ravindra Rao

Head - Commodity Research|Kotak Securities

• 
  US labour report to determine second quarter sentiment for commodities next week
• 
  Commodity markets to focus on Fed Chair's speech, US PCE price index, Q3 GDP numbers this week
• 
  Monetary policy meetings in US, Japan, UK to set the tone for commodity market movements next week

Besides, normal weather forecast by IMD for the third straight season this year, which is expected to result in a bumper agriculture production this year, have also compelled market participants to take profits in agriculture commodities after superfluous returns since past many weeks.

Kharif crop sowing will commence in India with the onset of monsoon, i.e. around June 1. Looking at record returns provided by agriculture commodities last season and forecast of normal monsoon, we may see kharif crop acreage to rise considerably this season.

We expect correction to continue in agriculture commodities in coming sessions following aggravating COVID conditions in the country and steep rise in prices since past many weeks.

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.