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Published on 7/02/2018 10:59:19 AM | Source: Angel Commodities Pvt Ltd

Cotton futures are expected trade sideways to lower tracking improved arrivals - Angel Commodities

Agri-Fundamentals

Soybean

NCDEX Feb Soybean closed higher on short covering on Tuesday but fallen two week low during the day due to weak demand from the mills as prices have increased. Earlier, prices have touched 18 months high due to downward revision in soybean production form the top two producing states is mainly due to uneven rains during the monsoon season. A sudden spurt in soybean prices has made Indian meal exports uncompetitive over the past one month, prompting exporters to forecast a 50% decline in shipments this oil year (Nov 2017–Ot2018).

India’s cost of soymeal production works out to $500 a tonne as against exports from Argentina and the United States at $400 a tonne. Therefore, Indian soybean meal is more expensive by $100 a tonne when compared to the rest of the world.

CBOT Mar Soybean futures rose 1.7% on Tuesday on worries about dry weather hurting crop prospects in Argentina, despite rains expected in the coming days. Protests by truckers, slowing shipping in Argentina, also provided support.

Soybeans firmed on worries that rains forecast for Argentina's crop belt late this week might not be enough to relieve stress on soybeans. Argentina is the world's top exporter of soymeal and soyoil. Market is projecting the USDA may add 1.5 mt to Brazil’s soybean production to 111.5 mt. That increase is expected to be offset by a 2.2 mt reduction in Argentine production to 53.8 mt.

RMseed (Mustard seed)

Mustard Apr futures closed higher on Tuesday due to fresh buying initiated by market participants tracking higher prices in International markets. Recently, mustard prices have touched one year high and trading above its MSP of Rs. 4000 per quintal on reports good physical demand and lower production in coming rabi season. Mustard acreage is down 5% on year at 66.7 lakh ha due to poor returns in the last one year. Mustard acreage in Rajasthan, the largest grower, was at 21 lakh ha in 2017-18, down 25.4% from a year ago. Rajasthan accounts for over 70% of the country's total mustard production. The state farm department has also estimated smaller mustard crop at 32 lakh tn in 2017-18 against, down 16% from a year ago.

Outlook

Soybean futures are expected to trade sideways to lower on expectation of further corrections. The prices may still trade firm in long term on reports of lower production in MP and improved oil mills demand and slowing arrivals. Higher incentives for oil meal export, improved estimates for meal exports also supporting soybean prices.

Mustard futures expected to trade sideways to lower due to technical corrections. However, improved physical demand on anticipation of good uptake by oil mills may keep prices supported above MSP.

Refine Soy Oil

Refined Soy Oil Feb closed lower on Tuesday mainly on profit booking by the market participants from the higher levels tracking higher stocks in the country. As per SEA, stock position at ports & pipeline is at 21.76 lakh tonnes as on Jan 1, higher by 17% on year. The futures price have been correcting due to drop in soybean prices in physical market and reduction of tariff value by government for first half of Feb.

Government has slashed the base import price of crude soy oil by $5 per tonnes to $822. The government revises base import prices every fortnight based on the global prices and changes in foreign exchange rates. The prices were last revised on Jan 15.

According to data released by the Solvent Extractors' Association (SEA), India's edible oil imports fell 10% on year to 10.6 lakh tonnes in December due to a sharp hike in import duty. Soyoil imports were down by 66% in December to 79,250 tonnes compared to 2.32 lt last year.

Crude Palm oil

MCX CPO closed flat on Tuesday tracking higher stock pile in the domestic market coupled with weak Malaysia futures. Government cuts tariff value for CPO by $1 per tn to $675 while increase tariffs for RBD Palmolein by $5 to $695 for the first half of Feb. On anticipation that country will import more as Malaysia lifted export taxes may pressurize prices in the coming weeks.

As per SEA latest report, During Nov-Dec, import of refined palm oil fell to 254,286 tn from 486,502 tn in corresponding period last year. However, import of crude palm oil increased to 11.7 lakh tn from 10.3 lakh tn a year ago

Malaysian palm oil closed lower on Tuesday on profit booking by the market participants tracking losses in global financial markets. Moreover, higher stockpiles of palm oil are also pressurizing prices and are unlikely to see strong gains until stockpiles start to reduce. Malaysia's palm oil shipments in January fell 8-9% from a month earlier, according to data from two cargo surveyors.

A Reuters poll forecast that January production will fall 14.9 % to 1.56 mt, its lowest in seven months and the sharpest monthly drop in two years. The poll also forecast that end-stocks would rise 0.6 % to 2.75 mt, while exports are forecast to fall 8% from December to 1.31 mt.

Outlook

We expect Ref Soy oil to trade sideways to down tracking weak prices of soybean in domestic market. Moreover, lower base import prices may also pressurize prices. Reports of improved demand in physical market may support prices.

CPO futures may trade sideways tracking weak International prices and good physical demand in the domestic market. However, higher stocks and cut in base import prices by the govt. for second half of January may keep prices in a range.

Chana

Chana Mar futures closed higher for the second consecutive session on Tuesday mainly on short covering after government raised import duty on chana to 40% from 30%. Still, futures have been trade below minimum support prices. Chana is trading at 33 months low on concern over higher domestic stocks amid expectation of higher production estimate due to record acreage. As per government sowing data, area under the chana crop across the country was up 8.3% on year at 107.2 lakh ha as on last week.

Moreover, higher imports during the current financial year too pressurize prices. As per government data, India imported about 5.84 lakh tonnes of chana during Apr-Oct, up by 430% compared the last year imports. The imports were mostly done from Australia.

Outlook

Chana futures may trade sideways to higher on anticipation of improvement in physical demand at lower levels. Moreover, increase in import tax too support prices. Reports of higher crop due to record acreage may keep prices in a range.

Cotton / Kapas

MCX Feb Cotton falls for third consecutive session on Tuesday taking clue from the weak International. Domestic kapas prices also traded under pressure on expectation of improved arrivals. However, this season prices have been supported on reports of lower than expected production estimates. According to CCI, about 176.5 lakh bales have arrived in the Indian markets this season compared to 141 lakh bales last year till Jan 30. However, Cotton production in India in 2017-18 (Oct-Sep) is likely to miss the government's estimate of 322 lakh bales by 7-8% due to pest attack in large areas across Maharashtra and Telangana.

ICE cotton futures fell for third consecutive session on Tuesday to settle near a seven-week low, as market participants liquidated ahead of a monthly U.S. government report and index funds rolled their positions. The International Cotton Advisory Committee currently estimates that the world cotton production will total 25.51 mt in 17/18, 2.53 mt larger than 16/17. Ending stocks are only estimated to increase 0.14 mt to 18.88 mt. Moreover, Speculators reduced their net long position in cotton for the first time in 11 weeks in the week to Jan. 30, cutting their positions by 19,534 lots to 95,586 lots.

Outlook

Cotton futures are expected trade sideways to lower tracking improved arrivals. However, the price may improve from current levels as Cotton production is expected to be lower than initially projected by the various agencies.

Spices (Jeera & Turmeric)

NCDEX Mar Jeera futures closed higher on Tuesday mainly due to short covering by the market participants on expectation of good demand for new season crop. Market is expecting higher production and start of new season arrivals in coming weeks. Jeera futures are trading at more than one year lows. The new season arrivals are expected to pick up in next 15-20 days. Jeera production may be higher in coming season on reports of higher acreage of cumin in Gujarat during current season.

In Gujarat, Jeera acreage is up by 38% to 3.83 lakh hectares as on 15-Jan-18. Last year, it was 2.88 lakh ha at that same time. As per government data, Jeera exports during first 7 month of FY 2017/18 (Apr-Oct) is 88,229 tonnes, up 11% compared to last year exports volume for the same period. India's jeera exports in October increase by 37% on year to 10,402 tn.

Turmeric Apr contract closed little higher on technical buying but mainly seen a downtrend on anticipation of higher new season arrivals. However, there is an anticipation of improved physical demand for new season crop. Currently supplies from the new season turmeric have been higher during Jan at 14,000 tonnes compared to 13,319 tonnes last year, as per Agmarknet data. The export of turmeric is down by 17% to 63,395 tonnes for the first 7 month of FY 2017/18 compared to last years’ exports.

Outlook

We expect Jeera Mar futures may trade sideways on anticipation of higher production from new season and lower physical due to higher prices. However, lower level buying may support prices.

Turmeric Apr futures expected to trade sideways to lower due to steady physical demand and expectation of good production of turmeric. However, expectation of improvement in up country demands for new season crop may support prices in coming weeks.

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