Oil complex fundamentals currently remain bullish for edible oils. India is considering raising import taxes on edible oils as it seeks to become self-reliant by boosting local oilseed production with the help of tax revenue.
Ajitesh Mullick
After the recent highs seen for most agri commodity prices, profit booking at the higher levels limited the uptrend for agri prices. Reports of rains in parts of North-West and Central India too adversely affected the sentiments. Rains at these stages are considered good for the crop sowing later on.
However, as seen last week also, the fall is temporary and as mentioned earlier, these lower levels may not be sustainable. Prices have fallen a lot over last 3-4 months for most agri counters due to lack of trading (mainly exports) from coronavirus fears.
Thus most of the bearish impact of the normal monsoon reports has been accounted for. As mandis gradually open, the demand – mainly on the export front is expected to rise. This could keep prices from falling a lot, even as the uptrend too may be limited due to lesser than normal demand.
As markets started opening for cotton, Indian exports are expected to pick up as Indian rates are reportedly low globally. This should help exports pick up. With reports of lower stocks, an expected rise in exports to China, Vietnam and Bangladesh in coming days could support Indian prices.
Apprehensions of lower sowing due to the low rates too could be supportive factor for the prices. Rise in MSP (medium staple by Rs 260 per quintal and long staple by Rs 275 per quintal) supported prices. Expectations of limited damage to Indian crops from locusts attacks in North-West India and favorable Indian weather too kept uptrend limited.
Rains in some areas in North-West India had a limited bearish impact on Guar prices, as market bounced back towards end of the day. Slight slowdown in monsoon progress too supported prices. With prices already at very low levels—having fallen a lot over low export demand due to Coronavirus over last 3 months, too much fall from these levels are unlikely.
With sowing to start soon after monsoon rains, this is beneficial for crop sowing. Lack of exports remained a bearish factor, but that is expected to pick up as mandis gradually open up.
Lack of strong demand adversely affecting any major price movement for spices, but the recent recovery in Turmeric, Dhaniya and Jeera shows a likelihood of some bouncebacks from these levels as trading activities pick up after lockdown.
Oil complex fundamentals currently remain bullish for edible oils. India is considering raising import taxes on edible oils as it seeks to become self-reliant by boosting local oilseed production with the help of tax revenue.
This news remains bullish for the entire oil complex markets. Strike in Brazil, strength in edible oils and positive global oil seed markets have been supportive for the domestic soybean prices of late.
At the same time there are lots of reforms being announced for the agriculture sector, like amendment of the Essential Commodities Act, involving de-regulation of edible oils and oilseeds, thereby enabling barrier free trade by farmers.
Also, deposits are quite less the warehouses against June expiry. Therefore tendency of futures prices to surpass Rs 4,000 in coming weeks has increased.
For RM seed, possibility of lower crop output because of recent rains, in addition to delayed harvest due to the lockdown situation will be a key bullish driver. Steady demand for RM oil shall also support the upward trend in coming sessions.
The author VP-Retail Research at Religare Broking.
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