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Monday, November 23, 2009


What kind of world do we wake up to each morning these days? And how did we get here?
Good news ,we are getting used to price levels unheard of earlier. That is a good sign because high prices are the curefor high prices.Producers crippled by rising input and labor costs realize to their amazement they still have a market.

Once again its been a very strange start to the sesame season in India.Our initial estimated posted on the September 9th report of the crop being about 280,000 MT in stark contradiction to the market sentiments at that time seem to be more or less on target at the moment looking at the arrivals figures of past 1 month in India.

Just as we mentioned in the last report the crop was certainly late and although the prices did fall in anticipation of a good crop early in October the speculators and stockiest just went berserk suddenly by end of the month. It seems like the late crop arrival led to a lot of short covering which combined with the factors of lower arrivals , bullish sentiments of the stockiest , almost zero carry forward stocks apart from some in Gujarat region , weak USD,the crop delay in Africa,a very strong domestic demand which is likely to support the markets till Jan end and to top it all the announcement of Korean tender in the end of Oct all played their part in the sudden rise.

However all that is past and the big question now remains about the prices for next few months.I wish i knew the answer too. As you would notice from the above para there were a lot of factors put together that contributed to the price rise and in my personal opinion it would take just about the same number of factors to pull it down as well.Individual factors like lack of demand or a good African crop may bring the prices down a bit but they are bound to jump back from them quickly enough.

Now looking at the trigger points one by one
1:- Arrivals are unlikely to pick up in India anymore.If price was the factor farmers should have already brought in the cargo inhaste to the yards but they didn't. This could mean 2 things that either all the estimates are wrong and in reality the crop is not as big as estimated or the farmers will continue/prefer selling in small lots and are maintaining a benchmark price below which they will not sell.

2:- Although the domestic demand will drop drastically after Jan , by then it would have substantially finished a huge quantity from the market. We have always underestimated the domestic sesame consumption in India but in the last 2 yrs the market has seen and knows that the demand is steadily increasing.

3:- Stocking this year has happened at 4 different levels a:- Farmers b:-Middle man c:- Wholesaler/Stockiest d:- Manufacturer/Exporters
The different levels give that much more room and financial support to the market to avoid that sudden fall which we have seen in the past. Even if one levels panics there is another level to support the market.The problem in India is that with high prices govt has put a stock limit on most of the active commodities , Rice, Wheat , Sugar , Edible oil all have stock limit so there are more and more stockiest looking for newer and other commodities to stock and hoard. That means the crop is now divided into a lot of smaller parts which makes the fall pattern slower and rise patter more drastic.

4:- African crop, the biggest factor .Well in my opinion they have always been taken for granted by most buyers and I don't think that will be the trend in the coming future anymore.The crop in Sudan has been very actively consumed within the middle east itself , with Egypt emerging as its biggest buyer. Ethiopian seeds continue to enjoy their preferential status in China and with their superior taste/preference advantage should continue to be priced competitively.The Japanese buyer have been known to be very fond of the Nigerian seeds and although they are
not active in the market at the moment , its just a matter of time before they will step in and pick up the south American and Nigerian crops in a frenzy. All other African nations usually follow the price trends in the " BIG 3 "and mark their prices accordingly.

5:- Korean Tender...We've already seen Africa pricing themselves above India in the last Korean Tender and despite a rebidding they were not very active in it.I think with all the banking,shipping and quality constrains of Korean Tender , India will continue to be its biggest bidder. That means about 40-50,000 MT Natural Sesame from India in the coming 10 months is set aside just for that.

6:- Chinese demand is unlikely to come to India at these high levels which means they will do all their shopping in Africa, and despite the fact that they have a good crop they will shop for sure.Myanmar crop is down about 40% and that means the 100,000 Mt which Myanmar supplied to China is no longer available and although not all 100,000 will be needed but that still means that China will have to look elsewhere to substitute a part of that quantity.

7:- South American crop is estimated to be of the same size if not smaller and just like last year they will continue to feed their own niche market without much surplus to impact prices in India and Africa.

8:- The USD is also unlike to regain past levels. Currently 1USD = 46.40 INR.

We still believe there is a huge psychological resistance at $1750 FOB for Hulled from the sellers point of view and on the upside at $1950 from the buyers point of view. In Natural the levels seem be at $ 1450 FOB and $ 1650 FOB respectively.It remains an open secret that the buyers are short and they have to resume buying at some point and the market here seem to be waiting just for that.

Ofcourse we will see dips from time to time on profit bookings and as always we sincerely suggest the buyers to take advantage of the dips and try to make an average rather than waiting for the absolute bottom before stepping as that bottom may be impossible to judge in this volatile market.We agree that most buyers think that this is another bubble and may burst anytime but sitting on the shore waiting and watching will be no good either , the best way forward to accept the fact that volatility is here to stay and we all have to learn to live with it.

No one expect and predicted India's shift from being a rice exporter to a rice importer ,this has been triggered by concern India may itself be running short of this daily staple.India, a low-cost producer and among the top three exporters of rice in the world, will continue to export premium basmati rice, which is beyond the budget of most families.All this doesn't make sense does it? But these are bitter facts.

India should continue to be a force as far as Hulled Sesame is concerned, the domestic market is growing and developing rapidly just as it did in china a few yrs ago.All of us forget that fact that even 10 yrs ago when India was exporting less than 200,000 Mt of Sesame (Hulled/Natural)combined it was still consuming the balance 400,000 it produced domestically.The only difference is that at that point the domestic consumption was price
driven while the current consumption is a combination of price and changing eating habits.Sesame oil in India has moved up from being a cheap mixing option in Edible oil to a self standing commodity.

Even so, bread, buns , burgers and bagels are foods that we choose to eat. They are not as critical for our health and survival as Lentils and vegetable.Or so we thought. Not anymore. The Indian consumer remains willing and able to buy them directly or consume them through processed foods without much outcry. Sure, a few families will cut back. But not so you would notice. Our new food choices are here to stay.