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Tuesday, July 7, 2009


2008 was a rotten year for food prices. Prices climbed so high that very few could eat as well as they might have. 2009 in reverse has been a year of slow but steady consolidation. Prices have dropped but not crashed, food is cheaper again but still not back to the lows seen 2 years ago.

After a very boring season we are finally entering into the exciting time of the year. This is the time when people start throwing in their opinions , numbers for new crop quantity and some even speculative prices for the new season.

Just as we mentioned in our last report the price remains range bound in India with almost a very clear resistance level both on the upside and at the bottom. The volumes have dropped drastically, China and Turkey dont seem to be very active buying but still prices manage to hold firm. The Gujarat Summer crop was said to be 80,000 Mt and considering the daily arrival figures of the past 2 months and current arrival figures it might reach round 65,000-70,000 Mt if not 80,000 Mt. Which is still a very huge quantity for summer crop, but even that did not bring the market down crashing as everyone thought it would.

1:- The Summer crop arrival figures reflect that almost 45-50,000 Mt crop is already out in the market till date.

2:- Out of which we believe about 15,000 was used for the Korean Tender , another 15-20,000 Mt probably for Exports both Natural and Hulled combined.

3:- About 5,000 was consumed domestically.

4:- That means the stocks in our opinion should not be more than 10,000 Mt at most with stockists and Exporters.The Stocks would probably be used up if and when the next Korean Tender is announced or exported elsewhere.U.P/M.P stocks are almost negligible at the moment , I personally would'nt put them more than 1000-2000 Mt and for Rajasthan about 3000-4000 Mt at max.These stocks are spread over so many stockist that they would hardly create a ripple effect in the market even if we start to see some price decline in the coming months.

The current arrivals in Gujarat are down to 100-150 Mt per day and that should continue to serve the day to day requirement of the Hulling factories,domestic consumptions and spot demand for the next 1-2 months.

Now to the interesting part. It finally rained in Delhi/Mumbai this week.

"Delayed monsoons was the big media story only until it didn't rain in Mumbai. Now that it has started raining there, the monsoon story is suddenly over ..... or is it ? We don't grown sesame in Delhi and Mumbai and the news doesn't cover the villages that frantically."Touche :)

Monsoon is late and slow this year and thats a fact.Sesame as we know is a 90 days crop .Traditionally the Gujarat/Maharastra new crop comes out by end of September and other regions i.e U.P/M.P and Rajasthan 2 weeks later i.e by Early October. However this season due the delayed monsoon , Gujarat/Maharastra got their first rains in the last week of june and the sowing started in first week of July and is unlikely to finish before the 3rd week of July and in other regions it has not even commenced fully as yet, at best about 20-23% sowing estimated in some irrigated areas.

This means that the Gujarat new crop is unlikely to come out before first week on October and since Diwali is on 17th Oct this year the farmers traditonally do not get the crop into their market in a frenzy during that week so the arrivals will pick up only around End October. The new crop is unlikely to reach respective destinations before Early November/Mid November and the big question is that do the buyer's have enough stocks to sustain till that long?

All said , we are not very concerned about the 2 weeks delay , that is manageable. The concern is that the rains are still not favorable in most regions. It rained for a few days and the rains are gone again which is definitely not enough for any crop including sesame and the worst is that the Indian Meteorological Department still says that we will have a good monsoon which means that the spread of rains is now concentrated over the next 2 months which is not good news specially for a crop like sesame.

The seeds can do with little rains but if we have a situation like last year when it rained too much at the wrong time we might have a big problem on our hands.The acerage of sesame is bound to go up even this year as the farmers have been getting very good price for their products over the past 3 years and that should be an encouraging fact for them.However last years disaster has prompted a lot of farmers to go in for dual crop , one which requires more water and the other drought resistance to safeguard their interest.

African stocks are heard to be limited as well and should be enough to sustain the Ramadan demand. A few African countries Tanzania, Mozambique will now have new harvest season.China we believe despite their big crop will continue to remain a net importer and Japanese demand which was slow this year due to the very large quantity and long term contracts they entered into last season will expire and they are heard to be running on low inventories as well.

In Ethiopia most inventory is in traders' hand, farmers have a small number of goods. The majority of local traders believe that the total inventory is in 25,000 tons level and some local traders think that the total inventory is 40,000 tons to 45,000 tons. Stocks in Sudan are also not estimated to be very large and with their new crop still 5 months away i.e End Nov/Dec the chances of prices falling there are slim too.

This year high prices in India diverted a lot of quantities and buyers to Africa.Even India is supposed to have imported more than 5000 Mt of African Sesame at lower levels, is this the sigh of things to come. Is India going the china way? We know for a fact now that at high levels demand will suffer from India.

Taking away the demand at higher levels which was evident this season, in the long run will only help sesame because the market will adjust and naturally correct itself. Sesame is a large cash crop in India, we produce about 700,000 Mt annually and export about 30% out of it obviously consuming the rest.Like China the domestic demand is getting bigger and bigger each year along with the exports. And for sesame India is the world’s biggest exporter ,2nd largest producer, 4th largest consumer . Surely, it should learn to stand on its own feet. We have had a large exportable surplus for the last two years because sesame seed production has outpaced our capacity to hull or export.

What will happen if there are less exports? There is every chance local prices will crash due to oversupply, creating misery for farmers. Second, since domestic prices will crash, local crushing mills will have a bonanza. Their raw material would become substantially cheaper with no rival bids from exporters.The cheaper oil then finds its way into the already established edible oil sector for direct or blending purpose. This oversupply problem would, however, only happen for one season. In the next season, farmers will stay away from sesame, they won’t touch a crop for which there are no takers. The oversupply situation would correct itself and once again there would be a balance between demand and supply. The sesame industry will discover it was a phyrric victory.

More broadly, a reduction in India’s crop would reduce the global availability of sesame drastically. Demand for sesame seed internationally would also recover as the world economy gets back on its feet. That would push up world prices, creating an opportunity for Indian exporters once again. In other words, if there is no artificial prop for exports, by 2010 India’s sesame prices would correct itself with new price equilibrium.

The bad news is that 2009 will be tough. There would be plenty of tears, recriminations and guilt. Farmers are planting the 2009 crop on the basis of the fantastic price they got in 2008 from exporters and stockist.They made good sales in the past 2 yrs and are now financially in a better position to bargain a little, they showed that all this season by holding back whenever they thought prices were following.Can they do it again this season?

Its still too early to comment or predict where the prices will be 2-3 months from now.We still hope that India has a good crop, prices reach a balance which is good both
for the consumers and the farmers and we see renewed demand once again.Larger crops mean greater liquidity and depth in the physical as well futures markets, bigger corporate players and more investment in forward and backward linkages. All this to me appears like a definite thumbs up for the commodity markets in India.

Let's say cheers to that and hope that banks actually have the money to lend.