Urad Long-Term Fundamentals Weak On Ample Supply

MUMBAI (Commoditiescontrol) - Urad (Black Mapte) prices earlier last month in February 23, 2017 dropped to lowest level in more than 2 year at Rs 4,900/100kg, however thereafter recovered over 22 percent at Rs 5,900 due to strong demand at the attractive rates supported by lower than expected arrivals in the spot markets amid farmer’s reluctance to sell their produce below MSP level (Rs 5,000/100kg, including Rs 425 bonus).

But now question arises whether the current rally in urad prices is sustainable or will edged lower again. In order to understand the fundamentals and price direction commoditiescontrol.com has come with exclusive report on urad. Let's have a look at balance sheet first to get a better idea.

India government in second advance estimate for 2016-17 pegged domestic urad production at record 28.9 lakh tonnes, including 21.1 lakh tonnes from Kharif and 7.8 lakh tonnes from rabi crop. However, after brief survey with leading players in the Industry we have arrived at production figure somewhere around 25 lakh tonnes.

India total urad acreage during 2016-17 (Kharif+Rabi) rose nearly 22 percent at 44.22 lakh hectares versus 36.32 lakh hectares a year ago. Yield turn out much better this season due to good rainfall in major producing states. However, rabi urad crop in Andhra Pradesh was hurt by poor yield due to dry weather conditions.

According to balance sheet drawn by commoditiecontrol.com the total supply of urad for 2016-17 (Oct-Sept) likely at 29.5 lakh tonnes. Domestic use is likely at 22 lakh tonnes leaving ending stocks on higher side at 7.5 lakh tonnes. The balance sheet suggests that urad availability will be ample throughout the year and thus any sharp rise in prices unlikely from hereon. However, there are reports aired in the market that government is likely to raise import duty on pulses and incase that happens that may provide good support to domestic urad prices.

India government had earlier in 2006 has abolished import duty on pulses to increase availability in order to meet rising demand against lower supply.

Market Condition & Fundamentals
Urad season starts Kharif (October 2016) and looking at the price it has been observed that prices have dropped 25 percent than what was offered during early season due to record production.

According to Agmarknet the country has received 6.02 lakh tonnes of urad during October 1, 2016 -February 10, 2017 in various states, which is 89.43 percent higher from 3.18 lakh tonnes same period last year. Higher supply is evidence of robust production in the country.

Though supply of still lower than market expectations as a major chunk of crop is held by farmers due to lower prices. Farmers and stockists are selling their produce gradually and will increase selling in case prices rise and sustain above Rs 6,500-7,000.

According to trade sources stockists has earlier sourced urad at higher level of Rs 6,500-7,000/100kg with a view that prices will rise as they had seen record price Rs 11,800/100kg in April 2016. Stockists are now holding urad anticipating that prices will rise from June onwards as Australia weather bureau has projected possibility of El Nino in 2017 and in that case India may face below normal rainfall, which may push commodity prices higher.

Urad is mostly consumed in South India and so far, they have preferred to source urad mainly from Madhya Pradesh and Uttar Pradesh as parity and quality was better compared with Maharashtra.

Burma new crop is expected to be around 6 lakh tonnes with 1 lakh tonnes as carryover stocks from previous crop and this supply is yet to be hit India. India consumes around 80 percent of Burmese urad. Indian buyers have so far avoided buying due to ample availability in the local market. Further Burmese sellers were also reluctant to offload their produce due to sudden crash in prices.

Moreover, government agencies have also procured 87,194 metric tonnes of urad as on March 7 for buffer stock and may liquidate any time to increase availability in case price rise. However, procurement volume is lower as prices in the states were mostly above MSP.

Burmese sellers are likely to opt to wait and watch before starting selling their produce in bulk quantity as they are waiting for clear report about weather, which India weather bureau will release in April.

However, availability of urad in the country is very much sufficient and any sharp rise in prices unlikely unless government raise duty on pulses imports or any weather abnormality.

Currency Impact
Movement in Indian currency will be also a key factor need to be very closely watch out. Depreciation in currency makes import costlier and vice-versa. Indian currency this week had dropped to 18-week low at 66.18. In case of Indian currency continue to strengthen then import may get cheaper and may weigh on urad prices.

Conclusion
Though urad prices in the recent weeks has shown good growth, but it will be tough challenge to sustain at the higher level due to robust domestic crop followed by expectations of more Burmese crop to may its way to Indian ports. Still a majority of crop is in farmers and stockists hand and any good rise from hereon may attract them to liquidate their stocks. Short term rise in urad can’t be ruled, but long term outlook seems to be bearish due to more than sufficient supply. However, price may get good support in case of India government raise import duty on pulses substantially or any weather abnormalities like El Nino events.

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TECHNICAL OUTLOOK: (IN RUPEE TERM)

URAD FAQ MUMBAI- Last Close-6000 – Minor Pullback Bounce Resumes

Monthly Chart

In our last update, we had indicated about the support of 4950-4000. The low till now of the fall from the peak is at 4900 and price as on 10/03/2017 is 6000. A bounce has been witnessed from the support of 4950. Minor pullback can be witnessed towards DRV which is at 6757 as shown in the chart.

The last violated bottom is at 6800. Expect rise towards 6757-6800 to face resistance.

Conclusion
Bounce has been witnessed for pullback to 6757-6800. Further weakness is below 4900.
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TECHNICAL OUTLOOK (IN DOLLAR TERM)

Burma Black Matpe (Urad) FAQ ($-CNF)- New Rally To Emerge

Weekly Chart


The lower top of 935 has been tested. The high till now of the current pullback reversal is 920. On sustained rise and close above 935 in near term reversal from lower top and lower bottom will be confirmed.

In that case a rise towards 1070 could be witnessed. Expect resistance around 935 and weakness will be restored on closing below 790.

Support gap will be at 830-790.

Conclusion
Near term reversal is in progress. On close above 935 new rally to 1070 and 1292 could be witnessed.

(By Commoditiescontrol Bureau; +91-22-40015533)