Ajitesh Mullick
Improved rains and prospects of more rains in coming days in major Kharif growing areas of North-West and Central India kept uptrend limited for the Agri counters.
Oil complex found some support from the International markets. However, Guar and Chana failed to move up as lack of strong trading activities in Mandis amidst lack of export demand for Guar, failed to provide the much-needed support to the prices.
As Monsoon remains critical for the Kharif crops at this time, the short-term sentiments keep getting determined by this factor. After last week's slowdown in rainfall activities, monsoon has picked up this week. However, it needs to be observed that too much rain would be harmful to the standing crops too. Thus short-term sentiments look volatile with short-term dips likely – followed by an expected recovery in prices during the second half of the week.
Guargum / Guarseed: Guar failed to recover as monsoon reached Rajasthan. Traders, however, feel that prices are at very low levels (having already fallen a lot due to lack of exports due to the coronavirus over the last 3-4 months). Further fall may be unsustainable for the counter.
Sentiments are gradually turning positive as mandis re-open and exports start rising. With sowing to start soon with the monsoon, that remains important. Lack of exports remained a bearish factor, but that is expected to pick up as mandis gradually open up.
Reports of higher production prospects and high stocks too put a lid on the upside. But demand in coming days could recover once the panic from coronavirus gets over. Falling stocks are also likely to support prices in the medium-term. These lower levels may not be sustainable—as per sources, as they look lucrative for exports to pick up.
As per APEDA, India has exported around 5,13,212 MT of Guar derivatives (Powder, Splits and Meal) in FY19 compared to 4,94,101 MT in FY18. Rising export demand from shale gas industry of North America due to rising crude oil prices have now been noted. This year, as per estimates, Gaur seed production will be lower than the previous year at 70-80 lakh bags. As per Advance Estimates of Department of Agriculture Rajasthan, seed production for 2018-19 is estimated at 14.55 lakh tons in 2018-19 versus 12.44 lakh tons in 2017-18. In Gujarat, seed production for 2018-19 is estimated to fall to 0.73 lakh tons in 2018-19 versus 1.40 lakh tons for 2017-18.
An expected fall in production for 2019-20 due to crop damage reports, amidst an expected rise in export demand in coming days — aided by a firm Dollar versus Rupee and firmness in crude oil prices, are likely to be strong supporting factors for the upside movement in prices in 2020. The cheaper Chinese substitutes remain a concern. However, monsoon remains a very critical factor in the short term. Good monsoon rains in Rajasthan will keep uptrend in prices limited. Poor rains / excessively high rains in the growing states could help support market sentiments.
We expect Guarseed August contract to find immediate Support at Rs 3,450-3,500 per quintal mark. Strong immediate resistance is seen at Rs 3,720 per quintal – breaking which, it may touch Rs 3,850-3,900 per quintal in the coming weeks. Guargum August contract is likely to face immediate strong support at Rs 5,200 per quintal. The resistance is at Rs 5,750 per quintal mark. Overall trend looks firm.
The author is VP - Retail Research at Religare Broking.
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