Castor prices decline 2.5% as cash margin goes up

NCDEX levies 20% special cash margins effective Monday

Castor seed prices declined by up to 2.5 per cent on Monday following the imposition of a 20 per cent margin on all buy-side contracts by the National Commodity and Derivatives Exchange (NCDEX).

The NCDEX levied the 20 per cent special cash margin on long (buy) side contracts with effect from March 27. With this, the applicable margins on castor seed are 29.98 per cent on the long side and 9.98 per cent on the short (sell) side. Increased margins force traders to reduce their positions, resulting in a price decline. 

Castor seed for delivery in July declined by 2.44 per cent to Rs 4,949 a quintal. All other active contracts also declined marginally. Open interest in all active castor seed contracts fell on Monday. 

Castor seed prices have risen 28.8 per cent since January on a decline in production. The rise coincides with the Securities and Exchange Board of India (Sebi) allowing companies like Ruchi Soya Industries to hedge their risks on futures platforms after a seven-month suspension.

In all, 19 entities, including Ruchi Soya, involved in the castor seed trade, were suspended by Sebi in May 2016. The regulator allowed them to resume trading on the futures exchange in January 2017. 

Trade sources anticipate a repeat of earlier manipulation of the castor seed price by a handful of traders, which led to the NCDEX suspending its trading for a while. Sources said Sebi was expected to discuss the issue with the finance ministry shortly.

A spokesperson for Ruchi Soya Industries declined to comment on the matter.

Castor seed futures on the NCDEX have surged to a two-year high on forecasts of weak output and strong export demand for derivative products like meal and oil in coming months.

“The country will see a second successive year of lower production despite steady export demand for meal and oil,” said an analyst.

Gujarat, the largest castor seed growing state, accounts for close to 70 per cent of the acreage. Farmers in Gujarat have sown castor seed on 565,000 hectares in 2016-17, 28 per cent less than a year ago, shifting instead to groundnut and pulses, which offer better returns due to higher prices and hikes in minimum support prices.

According to the Solvent Extractors' Association (SEA), castor seed acreage in 2016-17 nationwide declined 24.2 per cent to 840,000 hectares from over 1.10 million hectares a year ago. Castor seed is widely cultivated in Rajasthan, Andhra Pradesh and Telangana.

Castor seed production in Gujarat is expected to be 0.86 million tonnes in 2016-17, down from 1.17 million tonnes a year ago, according to the SEA. 

The Gujarat director of agriculture estimates production at 1.42 million tonnes.

The Centre estimates countrywide castor seed production at 1.74 million tonnes in 2016-17, down from 1.75 million tonnes in 2015-16 and 1.87 million tonnes in 2014-15.