Wheat prices Caught in a Web of Abundance

Domestic Scenario

India is the second largest producer of wheat in the world after China, contributing to about 13.02 per cent of the world’s production. According to the 4th advance estimates, wheat production for 2012-13 is estimated at a record 92.46 million tonnes. Since the last three years, production has increased owing to good yields across production tracks, supported by good monsoon rains and increase in the Minimum Support Price. Over 94.54 per cent of the total production for the country was contributed by 6 states. The top wheat producing states of the country are Uttar Pradesh (31.93 per cent), Punjab (18.21 per cent), Haryana (13.37 per cent), Madhya Pradesh (12.16 per cent), Rajasthan (9.82 per cent) and Bihar (4.98 per cent). The domestic consumption is estimated at 85 to 90 million MT. India holds the third position in the major wheat consumer’s list after China and European Union.

International Scenario

World wheat production is projected at a record 708.9 million MT, up 3.5 million MT. Higher production in Canada, the European Union (EU), and the FSU-12 more than offsets reductions in Iran and Paraguay. Black Sea production is expected to rebound to 108 million MT due to more favorable weather conditions, compared to 77.2 million MT in 2012-13. Consumption is expected to reach new record at 707 million MT, up 4 per cent from 2012-13 and World feed use is expected to rise 3 percent to 141 million MT.

Price Trend Analysis

The wheat Spot market price variation study indicates that the prices volatility remains steady for most of the year and a spurt is witnessed in the period between June and August. Reports of Black Sea exporters re-entering the export market at competitive prices is likely to keep the global price volatility under check. There are reports that Black Sea production is likely to rebound by 40 per cent to 108 million MT due to improved weather and higher yields, Russian production is expected to increase by 16.3 million MT from 2012-13 to 54.0 million MT and Black Sea exports are expected to reach 37.1 million MT and represent 24 per cent of world market, compared to 19 per cent in 2012-13. In the domestic market, as per the trend, the spurt in the volatility was noticed in the July – August 2013 period (from an average of around 20 per cent to over 40 per cent) and since then the prices have been consolidating in a tight range.

The major development in the global market which has supported the global market is the demand from China which is expected to import 9.5 million MT, compared to the 5-year average of 1.74 million MT with its production remaining unchanged at 121 million MT. The spot prices at Delhi sharply declined from March onwards due to record wheat production estimation of 92.46 million MT. The Indian market is marginally stable on the higher level amidst expectation of export of 5.5 million MT of wheat in the current marketing year.

Production Trends & Price Forecast

Wheat being a Rabi crop, sown during October to December, is highly dependent on good monsoon. This year, good rainfall received during the current monsoon season in major producing regions will certainly provide the required soil moisture during the sowing period. The upcoming season is likely to see production of around 90 to 95 million MT. the Indian market is currently pegged around Rs. 1650 a quintal, which is likely to hold on for the coming season without much fluctuation. I expect the 2014 prices to be range bound with the upper cap of Rs. 1780 a quintal & lower firm support at Rs. 1420 a quintal.

India Commodity Year Book 2014

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Barley Prices to Shoot Up in Coming Months

Domestic Scenario

Indian barley production during the year 2012-13 is estimated at around 1.74 million MT, marginally higher compared to 1.62 million MT during the preceding year, owing to good rains in kharif season improving the crop yield. Since last three years, production has been increasing owing to good yields across production tracks, supported by good monsoon rains and increase in the Minimum Support Price. Over 91.71 per cent of the total production for the country was contributed by 4 states. The top barley producing states of the country are Rajasthan (48.75 per cent), Uttar Pradesh (24.96 per cent), Haryana (9.45 per cent) and Madhya Pradesh (8.54 per cent). The domestic consumption is estimated at 1.5 to 1.75 million MT. India holds 14th position in the major barley consumer’s list, with the leaders being European Union (37.91 per cent) and China (9.57 per cent).

International Scenario

The International Grain Council revised upward its global 2013-14 barley production forecast to 142.3 (previous figure 142.0; 2012-13 129.5) million MT, and that for the EU-28 to 59.1 (58.4; 54.5) million MT and for Canada to 9.0 (8.8; 8.0) million MT, while in Ukraine output is seen lower at 7.4 (7.7; 6.9) million MT and in Argentina at 4.8 (5.0; 5.2) million MT. Production is seen unchanged in Russia at 16.5 (16.5; 13.9) million MT and in Australia at 7.5 (7.5; 6.8) million MT. Global use is forecast at 138.4 (138.1; 132.8) million MT, including 91.9 (91.7; 87.5) million MT for feed, 6.6 (6.6; 6.6) million MT for food and 30.0 (29.7; 29.2) million MT for industrial use. Global trade is projected to reach 18.8 (18.7; 19.5) million MT and ending stocks are seen to be at 26.5 (26.3; 22.5) million MT. 

Price Trend Analysis

The barley spot market price variation study indicates that the prices have been on the rise since January 2006 owing to reports of higher export demand. In the current year World barley stocks are likely to end 2012-13 at a five-year low of 22.5 million MT, with the drop in inventories in major exporting countries being particularly severe, of 14% to 12.5m tonnes, the lowest in 17 years. Moreover, Chinese imports of barley, which are essentially all for use by maltsters rather than as livestock, feed, nearly halved to 566,000 tonnes in the first four months of 2013. Owing to increased participation of India in the global export market over the years and declining demand, the prices are consolidating at lower levels.

As per the study, the prices have been weakening since the peak in April 2012. Prices had shown marginal recovery after September 2012 for the quarter ending December and since then the prices have maintained a lower trajectory in the domestic market. The key factor in the global market supporting the prices would be the demand from China and Saudi Arabia. Saudi Arabia, the world’s foremost barley-importing country, accounts for over 40 percent of world barley trade through the coming decade. Saudi Arabia’s barley imports are used primarily as feed for sheep, goats, and camels. Australia’s barley exports are projected to rise slowly, and the country is expected to maintain its role as the world’s third-largest exporter. The spot prices in barley are expected to improve due to support from the increased export demand. 

Production Estimates & Price Forecast

Barley being a Rabi crop, sown during October to December is highly dependent on good monsoon. This year, good rainfall received during the current monsoon season in major producing regions will certainly provide the required soil moisture during the sowing period. The upcoming season is likely to see production of around 1.7 to 1.8 million MT. Barley is all set to gain momentum in the coming days owing to expected production shortfall in the global market. India markets can expect a prices of over INR 1800 / quintal from current levels of about INR 1400 / qunital.

Copper : A Base Metal for Assured Investment in 2014

Domestic Scenario

India is among the top 20 major producers of copper globally. Over 30 per cent of India’s copper demand comes from the telecom sector and 26 per cent from the electrical sector in India. In addition, the building and construction, engineering, transport and consumer durables sectors are major consumers of copper in India. These sectors stand to benefit the most from lower prices of copper. During the last few years, India’s switch from net importer to exporter is due to a rise in production by three companies: Sterlite Industries, Hindalco, and Hindustan Copper. Hindalco and Sterlite industries account for more than 80 per cent of India’s total copper production. The Indian industry imports raw copper from Chile, Indonesia, Australia, and Canada and exports finished products to various destinations.

International Scenario

Mine production rose 715,000 MT or 4.5 per cent to 16.023 million MT in 2012 from the previous year, according to the ICSG. There were increases in China (26 per cent) Democratic Republic of Congo (DRC) (21 per cent), Mexico (18 per cent), Peru (five per cent) and Chile (three per cent), which more than offset declining output in Indonesia (26 per cent) and Australia (four per cent). The average world mine capacity utilisation rate climbed to 82 per cent in 2012 from 80.6 per cent in 2011. Refined output increased 485,000 MT or 2.5 percent to 20.132 million MT in 2012 compared with 2011, with primary output up 2.3 percent and secondary output up 3.3 per cent. The main increases came from China (11 per cent) via new capacity; Japan (14 per cent), where the industry recovered from the 2011 earthquake and tsunami, and the DRC (28 per cent), where new capacity was brought on line. Output declined six percent in Chile, three percent in the US and 45 per cent in the Philippines after a fire at the country’s sole smelter. Capacity utilisation dropped to 79 per cent from 80.6 per cent in 2011.

Stocks & Price Trend Analysis

In late 2012 and early 2013, optimism was running high that the US economic recovery would continue and that China would move into recovery mode too. On the strength of that, metal prices ran higher while investment interest picked up. Although US data has tended to remain upbeat, Chinese data has been less constructive and a recovery in demand during the first quarter has proved to be fairly elusive. This forced a reappraisal of the outlook for commodity demand and a corresponding correction in prices. The market was in a deficit of 3,40,000 MT in 2012, according to preliminary data from the International Copper Study Group (ICSG), but it had swung into a surplus in October and remained in one for the whole of the fourth quarter – totaling 2,37,000 MT.

How 2013 turns out is likely to be determined by the extent to which consumers feel the need to restock. Manufacturing PMIs have become quite mixed – the US ISM number climbed to 54.2 in February from 53.1 in January and 50.7 in December but then dropped to 51.3 in March, which suggest the US recovery is still stop/start. Copper has had some of the tightest fundamentals of all the metals in recent years, which is no doubt why prices have managed to hold so far above the marginal cost of production. On paper, the market looks set to move into a supply surplus in 2013, which should in theory put downward pressure on prices; indeed, that seems to have been unfolding in recent months.

The trends in global refined copper consumption are also progressing to an alarming state. Industrial production is not keeping up with copper consumption and recent indications have pointed to estimates in Chinese consumption to be very conservative. It now appears that in the next 25 years, the world will need to produce as much copper as has been produced in the history of humanity.

The outlook for copper is greatly focused on China. Copper consumption will grow as a consequence of overall economic growth. China has been a shining example of overall economic growth, growing at an annual rate of 9.9% between 1980 and 2010. Most forecasts do not have China slowing down anytime soon; the IMF predicts China's economy will expand at an annual rate of 9.7% over the next 5 years. One of the largest drivers of copper will be the growth of the Chinese consumer. Now one billion Chinese have become consumers, salaries have increased, and domestic consumption will continue growing faster than GDP (which in itself is projected to grow 500% by 2025).

China's consumption of refined copper is expected to grow more quickly in 2014, though not fast enough to boost imports significantly as production increases more quickly. China is the world's top producer and consumer of the metal and imports have been dropping in line with weaker economic activity, dragging international prices down nearly 10 per cent so far this year in the international market. China's consumption of refined copper is forecast to grow 6.5 per cent to 8.7 million tonnes in 2014, as Beijing continues to invest heavily in the power sector. The rate is slightly up from the 6.4 per cent growth rate expected for 2013 and 4.8 per cent increase recorded in 2012.

Other supporting news coming from US, where The Fed trimmed the pace of its monthly asset purchases by $10 billion to $75 billion, and sought to tamper the long-awaited move by suggesting its key interest rate would stay at rock bottom even longer than previously promised. Prices managed to gain around 3 percent by the end of the year as U.S. GDP grew at a solid 4.1 per cent annual rate from July through September, the fastest pace since late 2011 and significantly higher than previously believed, boosting the market sentiments.

Estimates & Price Forecast

China runs a structural copper deficit, with refined consumption of around 8.8 million MT and refined production of around 5.6 million MT; it seems unlikely that much of the Chinese stockpile will leave the country. Asia is accounting for 87 per cent of the increase in capacity – the China, India, Indonesia and Iran totals with all increase. Refined capacity would reach 30 million MT per year by the end of 2016, a rise of 18 per cent from 2012. In spite of projection o sharp hike in the production capacity, the huge demand from the Chinese power sector and emerging demand from European Union is likely to drive the prices on the higher side. Currently, Copper was one of the best performing commodities in December as it reacted to rising growth prospects in the US and sustained growth prospects in China, the world's two largest consumers. Supporting the move has been the continued drop in inventories at warehouses monitored by the two major futures exchanges in London and Shanghai. The range of the Indian MCX would be INR 380 on the lower side with possibility of its surging to INR 540 & above in 2014.

Investments Prospects for Gold in 2014

Demand for gold is one thing to look at but the other essential part of the equation with metals is supply - mines are expensive and time consuming to build. When it comes to the precious metals there is also monetary demand as some Central banks look to increase their gold reserves............................

Chinese gold buying unless it suits them for us to know. What's clear is that they have managed to acquire between 2,000 and 2,800 tonnes of gold in 2013, while........................

The best time to buy gold is when the market hates it. As per my analysis the global market is having a very firm support a $1168 a troy ounce and has good potential...............................

(Snippets form the interview )

http://www.youtube.com/watch?v=6i25ybDKe7o

Crude Palm Oil Destined to Climb Higher on Increased Demand Prospects

Domestic Scenario

India is the largest consumer of palm oil with a 16 per cent share, followed by Indonesia and China, with 13 per cent share each. In the total global imports, India has a share of 19 per cent per cent. However, India's share in the global production of palm oil is minuscule at around 0.2 per cent. Under the 12th Five Year Plan, the Agriculture Ministry plans to raise palm oil production by 0.3 million MT in five years. India consumes 17-18 million MT of edible oil annually, of which palm oil and soy oil account for over 45 per cent and 16 per cent share, respectively. Nearly 50-55 per cent of the consumption demand in the country is met by imports. In 2010-11, crude and refined palm oil accounted for over 74 per cent share, followed by soy oil with a 12 per cent share, in the total edible oil imports. This may surpass 10 million MT in 2012-13, compared to 9.98 million MT in 2011-12.

International Scenario

Global production of palm oil for 2013/14 is projected up 5 per cent to 58.1 million MT. Almost all of the increase could come from output growth in Indonesia, which is expected to rise to 31 million MT from 28.5 million MT in 2012/13. As a result, next season Indonesia is expected to expand its palm oil exports to 21 million MT from 20.1 million MT in 2012/13. Indonesia’s share of global palm oil exports could grow to nearly half. 

Price Trend Analysis

With the rising energy prices in the global market the prices of palm oil have moved up since November 2008. For the oil year 2010-11 the upswing in the prices started in the month of June and it continued till January amidst increased import demand from India, European Union and China. Since then the downward movement has been noticed amidst increased supplies from Indonesia and Malaysia and slowing of demand from China. The market is expected to witness another upswing in the coming months owing to the rising demand coupled with the new push toward bio-fuel use as geo-political unrest threatens crude oil supplies, and increased off take from European Union.

Looking at the price trends in palm oil, prices start the down trend during the month of May as the seasonal increase in oil palm fruit production and increased crushing activities lead to increase in supplies. Also the same coincides with the start of oilseed (especially soybean) plantings in US and China along with arrival of new crop oilseeds at the South American front. This down trend continues up to Sep-Oct, during which palm oil production peaks and also it is the period which signals the start of festive season buying across Asian countries. This uptrend continues till May, as the supplies remain tight. 

Production & Price Forecast

Low palm oil prices have made imports quite attractive, especially for India—the top import market. In January 2013, India imposed a 2.5 per cent duty on imports of CPO, effectively narrowing the duty gap between crude and refined products to 5 per cent. That is encouraging importers to buy cheaper refined palm oil instead of CPO. India's palm oil imports in the year starting Nov. 1, 2013 are likely to climb to 8.9 million MT from 8.7 million MT estimated for the current year. In spite of the surging production the increased demand is likely to keep supporting the prices and Malaysian CPO futures is likely to test the levels of 3200 to 3600 in the year 2014.