Castor seed prices declined by up to 2.5 per cent on Monday, following 20 per cent margins levied on all buy side contracts by the National Commodity & Derivatives Exchange (NCDEX) to cool down spiraling prices.
Through a circular dated March 24, NCDEX levied 20 per cent special cash margins on long (buy) contracts, effective Monday, March 27. With this, the applicable margins on castor seed work out to 29.98 per cent on long contracts and 9.98 per cent on short (sell) contracts.
The increase in margins reduces the availability of cash for trading, prompting traders to pare their positions, resulting in a price decline. As a consequence of these special margins, castor seed for delivery in July 2017 was down 2.44 per cent to Rs 4,949 a quintal. All other active contracts also declined, albeit marginally. Open interest in all active castor seed contracts also declined on Monday.
"Castorseed prices declined on Monday due to 20 per cent margins levied on the buy side," said Ritesh Kumar Sahu, an analyst with Angel Commodities.
Castorseed prices jumped by a staggering 28.8 per cent since January on a decline in production this year compared to last year. But, the increase also coincides with market regulator Sebi's permission to large corporates, including Ruchi Soya Industries, to hedge their risks on the futures platforms after seven months of suspension.
In fact, around 19 entities including Ruchi Soya Industries, which had traded in castorseed earlier, were suspended by the Sebi in May 2016. Sebi allowed them to start trading again on the futures platform in January 2017. Trade sources, however, anticipate a repeat of the earlier castorseed price manipulation by a handful of traders which forced NCDEX to suspend trading for some time. Trade sources said Sebi officials are scheduled to meet with the Ministry of Finance on this issue shortly.
"We would not be able to comment on this issue," said a spokesperson of Ruchi Soya Industries.
Meanwhile, Castor seed futures on NCDEX surged to a two-year high, supported by forecasts of weaker output, slower arrivals in the physical market and hopes of good export demand for castorseed derivative products (meal and oil) in the coming months.
Gujarat is the largest castor growing state, accounting for close to 70 per cent of area under cultivation in the country. During 2016-17, farmers in Gujarat have sown castor seed in 565,000 hectares, down 28 per cent from last year. Farmers have shifted to groundnut and pulses, which are offering better returns due to higher prices in the case of groundnut and increase in Minimum Support Prices (MSP) in the case of pulses.
According to Solvent Extractors' Association (SEA) of India, castor seed acreage for the country in 2016-17 season declined by about 24.2 per cent to 840,000 hectares from last year's 1.11 million hectares. Castor is also widely cultivated in Rajasthan, Andhra Pradesh and Telangana.
Castor Crop Survey 2016-17 released by SEA, castor production in Gujarat is expected to be 860,000 tonnes in 2016-17 as compared to 1.17 million tonnes the previous year. SEA is a national-level vegetable oil industry association. However, in contrast, Director of Agriculture, Gujarat State in its second advance estimate pegged production of 1.42 million tonnes.
According to Department of Agriculture, Government of India, castor seed production is estimated at 1.74 million tonnes in its second advance estimates for 2016-17 published in February 2017. Meanwhile, castor production in India was pegged at 1.75 million for the year 2015-16 as against 1.87 million in 2014-15.
Price increase is also getting support from estimated increase in exports of castor oil and castor meal.
"The price of castor seed have been surging this year as supplies have been on lower side. Country is going to see second successive year of lower production mainly due lower acreage. Despite the steady exports demand for meal and oil during the first two months of 2017, the prices have been in the higher side," said an analyst.
