Agricultural commodities outperform industrial consumables in 2012

Strong fundamentals drive agri commodities, economic uncertainty pulls non-agri behind

Agri commodities outperformed industrial consumables with an impressive margin in 2012 due to strong fundamental support from the American continent.

While the drought in Brazil and Argentina kept the global sentiments firm, the Indian government’s decision to raise the minimum support price (MSP) of agri produce helped the price remain on a firm footing. On the other hand, demand for industrial commodities remained low due to the prevailing uncertainty in the global economy.

Commodities like cardamom offered returns of 70 per cent followed by turmeric and soybean with 38 per cent and 29 per cent, respectively. Gold and silver, meanwhile, continued with double-digit returns this year on strong consumer support. At Rs 30,703 per 10 gm, gold on the Multi Commodity Exchange (MCX) posted a gain of 12.66 per cent, while silver surged 12.78 per cent to close the year at Rs 57,731 a kg.

MAKING THE RIGHT CHOICE
Commodity	Opening price on Jan 1	Closing price on Dec 28	Chg (%)
Cardamom (Rs/kg)	598.3	1016	70
Turmeric (Rs/qtl)	4770	6600	38
Soybean (Rs/qtl)	2521	3240	29
Chana(Rs/qtl)	3339	3825	15
Sugar(Rs/qtl)	2875	3248	13
RM seed(Rs/qtl)	3722	4170	12
Aluminium (Rs/kg)	106.95	112.7	5.38
Copper (Rs/kg)	406	438.8	8
Zinc (Rs/kg)	98.45	112.4	14.17
Gold (Rs/10 gm)	27,253	30,703	12.66
Silver (Rs/kg)	51,190	57,731	12.78
Brent crude (Rs/bbl)	5,710	6,100	6.83
Rubber (Rs/qtl)	19,875	16,541	-16.77
Source : Commodity exchanges, Price for near month contracts

“The year 2012 was not only an action-packed year from the commodities market perspective, but also a remarkable one for many agricultural commodities, which touched new highs on supply fears. Significant gains in the prices of most agricultural commodities were observed during June-July as a result of deficient rains in the first two months of the monsoon season 2012 in India, coupled with drought conditions in the US,” said Naveen Mathur, associate director, Angel Broking.

Revival of monsoon in India during the second half of the season helped ease some pressure on sowing and yield. Also, rabi sowing progressed well, which exerted downward pressure on agri commodity prices towards the last quarter of the year 2012. Yet, commodities like wheat registered significant gains of around 28.7 per cent and kapas 14.8 per cent.

A recent report from Religare Commodities said unfavorable weather conditions in Kerala are set to lower the cardamom output this year. During 2011-12, cardamom production went up 25 per cent to 12,975 tonnes against 10,380 tonnes in the previous year. On top of that, the production in Guatemala, too, has reportedly been adversely affected. Hence, the commodity’s price was supported by the overall estimates of supply shortage.

The year 2013 is likely to be even more exciting as improved production prospects for many crops in Indian and international markets have kept sentiments weak for most agri products as of now. Some more selling pressure thus, cannot be ruled out in the near term as arrivals of new crops start over the next two-three months for some commodities. But with reports of falling acreage for most rabi crops due to lower rains and weather uncertainties likely to continue from May onwards, price of agri commodities may remain firm until the third quarter of 2013, forecasts Prasoon Mathur, senior manager (retail research) of Religare Commodities.

In a major support of the agri commodity’s upward march, the government raised the benchmark MSP by up to 30 per cent. MSP for cotton (medium stapple) was raised to Rs 3,600 a quintal from Rs 2,800 a quintal and that of soybean (yellow) was hiked by Rs 550 to Rs 2,240 a quintal. Traders generally raise their quotes proportionately for their stocks also.

Kunal Soni, an analyst with Emkay Commotrade Ltd, however, feels gold will continue its upsurge this year as well, as the fiscal cliff deal in the US continues to attract investors, translating into higher prices in India due to weaker rupee and demand from rural areas.