The rising price of crude palm and refined soy oils amid increased domestic demand and exports may also support rapeseed oil.
Rape mustard seed is an edible rabi oilseed sown and grown in the months of November to January. Madhya Pradesh, Rajasthan and Haryana are the major growers of the oilseed that is harvested from February to April.
Sowing depends on winter weather conditions. Cooler temperatures, with good amounts of water content in the soil, improve sowing and eventually increase the production.
Price also plays a critical role in determining the extent of sowing. Higher prices are generally forecasted to increase sowing while lower prices can see farmers switch to crops such as channa and wheat.
Usually, the rape mustard seed is grown on the same fields as soybean in the Kharif season. Higher yields and production of soybean improves the nutritive value of the soil for rabi sowing.
Rape mustard seed oil is seen as a premium vegetable oil in the domestic market compared to crude palm and refined soy oils. The leftover gathered after the oil extraction is called rapeseed meal, which is exported or fed to cattle.
NCDEX mustard seed future price traded higher in June and in the first week of July, owing to easing of lockdown and reports of a 5-10 percent drop in production in 2019-20 compared to the previous year.
In addition, farmers have been occupied with the sowing, which has also led to lower arrivals in the Jaipur Mandi. Continued buying by NAFED from farmers and local mandis has supported the prices, eventually leading the basis (Spot - Active Futures) to be positive and reported nearly Rs 200 per quintal till July 6.
By July 6, NCDEX mustard futures had closed 6.31 percent higher at Rs 4,779 per quintal compared to Rs 4,495 per quintal reported on May 29.
For the coming month, we are expecting NCDEX mustard seed futures to trade bullish as the domestic demand for rapeseed meal is higher during this time of the year.
Correspondingly, lower carry forwards stocks due to lower production from last year (2019-20) are expected to support prices in the weaker zone.
Rapeseed mustard is selling above MSP (Rs 4,425 per quintal) in major markets and the Solvent Extractors Association of India could continue buying to support prices amid lockdown.
Rapeseed oil prices may also find upside movement due to rising prices of other oils such as crude palm and refined soy amid increased domestic demand and exports.
A possible rise in import duties on vegetable oils will also support rapeseed prices. The government can hike import duty on palm and other edible oils as the country seeks to be self-reliant by boosting the production of local oilseeds. Overall, we expect a bullish trend in NCDEX mustard futures for the month ahead.
(The author is Executive Director at Choice Broking.)Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.