Do Castor Prices Have Bigger Downside?

MUMBAI (Commoditiescontrol) - Castor seed spot prices peaked in December at around 4,800-4,850 per quintal basis Deesa NCDEX. Most people were then talking about prices going to 5,000 or more, but then all of a sudden stocks started appearing on exchange, and before anyone could fathom more than 2 lakh tonnes were delivered on NCDEX against January contract and 4.4 lakh tonnes continue to be seen in the exchange warehouses. Spot prices have corrected by more than 26% since then and seed as well as oil buyers are on side line and expect prices to fall further.

In the Castor conference at Ahmadabad on 21st February, 2015 the most asked question was - where did such large stocks come from? Estimates of carry in stocks at the conference were in the range of 600,000 to 800,000 tons. At least half of these stocks were termed as the unreported stocks from previous season and quantity of such stocks was estimated to be around 350,000 tones.

Emergence of these stocks has thrown all the balance sheet calculation off the balance. Last season, at this time, the trade concluded that the opening stocks for 2014 were around 450,000 tons. Excluding the unreported stocks, 2014 year end stocks would have been tightest in three years. One purpose that castor derivatives market served was that it brought out most stocks in the market and now we can assume with a greater accuracy that what we see is what we have.

The opening stock for 2015 is close to 750,000 tons and it includes the unreported stocks of 350,000 tons from previous seasons. Crop is being estimated at close to 1.3 million tons. With expected crushing of around 1.4 million tons the stock to use ratio would come to around 47%. Now if we look at 2014 season without the unreported stocks the current year looks very bearish, and it is also reflecting into the lower prices year on year. Last season the prices bottomed out at 3660/Qtl basis NCDEX. Current season lows are recorded at Rs 3550/Qtl. Seasonality pattern suggest that the prices usually bottom out in the month of May.

Economics say that that there is an invisible hand of market that factors in all the demand and supply of the market. And that higher stock to use ratio points to lower prices. Question is - did last year’s prices factor in all the stocks? Even the unreported ones? Because if it did then 2015 year is tighter season compared to 2014 and barring the sentiments, sustained lower prices are not warranted.

But if the last year prices did not factor in the unreported stocks, which were probably carried in from the record crop season seen in 2012, in that case the larger tradable quantity in 2015 could see prices dip further to the lows of 2013 of around 3300 per quintal or even lower. Price pattern of 2014 point to this possibility and hence remained higher compared to 2013 and 2012 seasons despite higher castor seed availability. Low production in 2014 kept the illusion of tight availability. But low crushing and exports ended up seeing huge carry forward stocks for 2015.

After factoring in the unreported stocks in 2012 balance sheet, the 2015 stock to use ratio is tightest since 2012. But its impact on price in the second half of the season remains highly questionable. Lot will also depend on the global demand for the castor derivatives at lower prices. Foreign buyers were of the opinion that China, the largest buyer of castor oil is very low on stocks and Castor oil prices close to $1100 per tonne vis-à-vis current prices of $1200 should see strong demand emerge. This is a correction of close to 8%.

Lastly, and as has been seen in the past, a more important factor that will influence the prices of castor seed is the farmer. The farmers have shown unwillingness to sell below 3500 per quintal and withholding of stocks by farmers could see slow down in race to lower prices. The base case scenario remains that the castor prices have another 8-10 % down side and Rs 3300 to 3200 per quintal cannot be ruled out by May 2015.

TECHNICAL VIEW



Dated 16/10/2015 Castor Seeds NCDEX Prices C2 Chart- Trend Still Down For Short Term

The trend is down and is likely to move towards the projection for Wave C which is at 3104 in near term to short term. Support is at 3596. On fall and close below 3596 expect a slide towards 3104 at least in near term to short term. Resistance is at 3800. Traders short need to maintain a stop loss at 3800.Pullback towards DRV of 4029 to be tested if close is above 3800. Expect selling pressure to continue below 3596. The major swing bottoms are at 2880 and 3119 and the same is likely to be tested.

Conclusion
Castor prices can remain weak in near term to short term with pullback potential to 4029 with a bias to test 3104.

(By Commoditiescontrol Bureau; +91-22-61391533