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Friday, August 26, 2016

Indian Sesame Seed Monsoon/New Crop August 26th 2016

Hello Everyone, 

Its been a long time since I got that urge of sharing my views on Sesame Seed and with the Indian Crop just around the corner couldn't resist.

First looking back at the 2015-16 crop , must say its been quite a dull and boring year for the speculators but a fruitful one for those who like to do clean and simple business. Yes there were a few spikes in prices, one just at the beginning then a few more but the rally could not really sustain itself for long. We saw the lows of USD 1100-1150 FOB for the Hulled and  3 digit numbers for the Natural but that was momentarily. The markets remained range bound more or less most part the year in the range of $1400-$1500 FOB levels for the Hulled despite a smaller Summer crop.Ocean freights touched all time lows which helped as well.

Some Export Import Numbers :-

Year                                        Export
2010-11                                 - 398,441 MT  
2011-12                                 - 389,154 MT  
2012-13                                 - 299,482 MT
2013-14                                 - 257,443 MT
2014-15                                 - 375,656 MT
2015-16                                 - 328,429 MT
2016-17 ( April/May )            -   69,094 MT

Looking at the numbers despite low prices and a huge supply the Export Numbers actually dipped from India. Strange right? Actually no, if you look at the numbers of April/May the volumes have picked up again , almost at an average of 35,000 MT/Month. I have a feeling a similar number would be for June and July as well. Last years export numbers are less because it was exactly opposite during that period ,April-September 2015 export numbers were less and exports picked up dramatically only after the new crop arrived which balanced the figures.

What this also tells us that unlike last year the buyer's may be sitting on a substantially good volume of cargo in their warehouse at very attractive prices and patiently waiting to book profit as and when possible. The prices at consuming destinations is relatively stable due to this. 

Year                                        Import
2010-11                                 -  8,727   MT
2011-12                                 -     609   MT
2012-13                                 - 38,050 MT
2013-14                                 - 72,928  MT
2014-15                                 - 34,767  MT
2015-16                                 - 23,597  MT
2016-17                                 -   5,144   MT

The export numbers also concur with the above situation , the Imports were relatively less and picked up after African destination started offering huge discount parity advantage. Another fact is that some import coming into India is on special request for reexport to special client needs and does not follow the price pattern.

1:- China crop is being harvested now and from what we've heard its smaller than last year.They had lots of rains and a lost quite a big volume to the rains and the sowing was less as compared to previous years in line with the trend of last few years. Logically speaking that should spur the market there or atleast create a ripple but  nothing moved. China is in a different league all together now , they are importing close to 1 million MT of sesame seeds from various global suppliers now and for them the local crop really doesn't matter much as long there is another destination which can cover that void. The trade to china has become so accessible and with so many big players the local crop has taken an absolute back seat in their scheme of things.The port stocks in China are rumored to be at an all time high , some estimate it to be close to 200,000 MT which is like a 3 month consumption buffer stock. Over this their new crop and the incoming imports have really slowed down the trade in China.

2:- Africa , sowing currently on in various countries and Nigerian crop is ready for harvest. It it rumored to be a good crop, last year around the same time we heard of rumours of some damage to the African crops but nothing much really happened and they had a good harvest. I believe many African countries are keeping a close watch on the situation in China and India and with both rumored to have bad crops the area under sesame cultivation can increase. Past experience shows us how quickly the African nations can add areas to a particular crop , there has been almost a 200-250% growth in sesame volumes in the past decade , thats almost an average growth rate of 20% annually with potential to add more if needed thanks to all the surplus uncultivated virgin landmass they have.

Sesame also serves as a cash crop for the Africans with huge volumes moving quickly , which means more $'s to the nations where the trade is not anymore about commodity but more about who has the $'s in hand for Imports. 

As on date apart from flooding in some parts of Sudan no bad news from any African sowing area. Sudan non the less is sitting on huge stocks from last season and would be happy to sell it out at discounted prices due to steep currency fluctuation there and with new crop just months away it makes perfect sense as well.

3:- India , just like last year the Met department warned well in advance of a good monsoon this year , Sesame of course is not a water friendly crop so we saw a lot of crop shift during sowing at the start of the season. We had estimated that last year atleast 10-15% extra area was covered under sesame plantation apart from the official government sowing area numbers , that swing number is definitely out of calculations this year. Apart from that officially the sowing is less by about 15% as per government data. So at first calculations we can discount that this year's crop will be less by atleast 30% compared to last year. Now coming to the damage caused by heavy rains in the remaining crop. The trade estimates coming from various people involved put the numbers between 30-40%. 

However frankly speaking I am yet to witness a photographic proof of this. Yes , the rains have been heavy and knowing the sesame plants we can surely say the low lying field or whereever there was water logging the damage may have been severe but to put a percentage number on damage as a total would be too hard. Some fields may have been totally wiped off but some fields which survived will probably compensate for the volume losses by increased yields. My number for average loss would not be more than 20% as a whole. Still that gets us down by 50% compared to last year( 15% Swing Sowing area + 15% Less average sowing + 20% Damage due to Rains) . Thats a huge number and perfect recipe for the bulls. The new crop is highly unlikely to be available for export before Mid of October.

Current Situation and Future Predictions :-

1:- First the stock situation. Last year we had a great crop, infact it was more than we could handle at one point of time and so we saw the price go down to a 5 year low. It did rebound quickly enough though as those levels looked fairly attractive for everyone to step in a buy/stock a little as per need. However the huge crop made sure that markets remained range bound most part of the year. Everytime our beloved Korean Tender tried to take the market up the warehouse doors would open and suddenly everyone wanted to sell their stocks. The situation i think remains the same at the moment as well , If last years crop numbers were correct India still had a good 60,000-70,000 Mt of stock from last year.

Although this stock is primarily of a higher range but with new crop round the corner profit booking is bound to happen at every jump.Never before has India carried such a huge carry over into the next season. Some estimates put the carry over close to 100,000 MT which I think might be possible as well as its impossible to judge the holding capacity at farm levels and the exact crop size.

How much exactly is the crop in India actually no one really knows , its just a guess work based on average yields from some farms and area under cultivation as per government data.However I believe it must be accurate to 10% deviation. 

Last 4 years official data numbers are as follows

2012-13                    340,000 MT
2013-14                    350,000 MT
2014-15                    470,000 MT
2015-16                    540,000 MT

And there are only the Kharif (winter) crop numbers , the Rabi( summer) crop is over and above this.

So a comparison between last years crop and this years estimate give us a crop of about 280,000 MT (50% of last year) + 60,000 MT of carry over . Total about 340,000 Mt which is back to our 2012 number. Now if you just scroll up you will see this is exactly the number which inspired India to import in a big way. That trend is most likely to be repeated. We will surely import a huge quantity from Africa this year.

All said and done the question now is why isn't the market reacting the way it really should having seen the facts above. In the past we've seen Indian prices jump $100 on a day to day basis for no reason at all but this time it hasn't been able to do so. Practically everyone is bullish in India at the moment , be it the farmer , stockiest , trader or the exporter but still nothing much has happened. Yes the prices are moving up slowly but not at the pace they should have. 

We believe for a bullish market the bulls really need to get all their fundamental's right
1:- Low Carry over's
2:- Less new crop
3:- A steady and healthy export demand
4:- A steady and healthy domestic demand
5:- Good access to a lot of funds to hold onto stocks for longer period
6:- Low global availability of the cargo

While for the bearish market the Bears only need to get one of the above 5 right and the market either falls or stays put.

We think that there is still some confusion over Point 1,3 and Point 6 which is holding back the bull run. Once the carry over stocks reach a slightly low volume and combined with some overseas demand we can definitely witness an upward rally , however even then there is 
Point 6 which could play spoil sport from time to time. 

Conclusion :- 

The numbers definitely point towards a bullish year ahead , however for all the fundamentals to play out right at the same time is a big ask so for sure there will be checks and balances from time to time. This makes it even tricky as one could easily be caught on the wrong foot by either going short or long at the wrong time. Buyer's could loose out on a lot of business to their respective competitors if they don't have enough cargo at the right price and the right time to sell or could be stuck with high priced cargo in their warehouses with no takers.

Difficult decisions to make which will surely keep all the Buyer's on their toes this time.
Would be interesting to see how the markets move , will Africa follow India's bullish trend or will they be happy/Forced to sell at lower levels just because they have so much more to sell than India. Their prices will surely remain lower than India otherwise India cannot import anything either.

The Domestic demand in India has grown substantially over the years and will start to come into play next month onwards and remain strong till Mid Jan. Their buying patter is erratic and irrational with sentiments playing more importance rather than actual consumption sometimes.
For India it could be particularly difficult year as Africa might find a foothold in countries where it traditionally has little or no presence. However India still has the advantage and upper hand in terms of Quality and Fair delivery.  

Not pointing fingers at anyone , it would not be wrong to say that Africa does have a dismal record on delivery when prices move up beyond a certain range , so it could be that low priced long term contracts may never reach or may reach later than you really need it. Either ways the buyers would end up loosing money and more importantly their respective clients business. We all know the value of keeping our clients intact in today's competitive world, one wrong move and its game over.

Then again we could be totally wrong and things may have changed over the years , this is just an apprehension and comment based on past experiences heard from within the commodity trade. 

Our suggestions as always would be not to be a speculator , the swings could be huge. This suggestion is for both long and short. Stick to good and reputed suppliers and not gamble around much in a year which could be highly volatile. 

Your good supplier is just as  important as your good client these days , its a chain and we are all just links in between so we need to keep the chain strong.Overall I see current levels pretty much close to the base with higher limits open for debate.

The double skin Bengal Hulled might make a comeback this year if the prices go up so my advice to the buyers ,Kindly be extra careful from whom and what you buyer specially in Hulled Sesame Sector. A few 100 dollars saved at the time of purchase may end up being a few 1000 $ claim plus reputation lost by the time the cycle is completed.

The USD has been fairly stable and hopefully will remain so in the near future with indian economy doing alright at the moment. However the ocean freights which went down to all time lows are bound to go up , infact have already gone up so that needs to be factored in as well for longer view of the market.