Inadequate groundnut availability may push oil prices to new heights

Insufficient supply of groundnut to crushing mills may push the commodity's oil prices to new heights by the time it enters new season. Fall in groundnut production in the previous season has led to scare availability of the crop for crushing mills.

According to groundnut oil millers, since last one month most of the units have been closed on account of insufficient groundnut supply from the market for crushing. This has pushed groundnut oil prices to rule at Rs 1,100 per 10 kg in wholesale markets in regions like Gujarat. Nationally, in terms of retail price, the same is being traded currently at Rs 1,800-1,825 per tin of 15 kg in states like Gujarat, Andhra Pradesh and Maharashtra.

In the last 10 days itself, prices of groundnut oil in both wholesale and retail markets have gained by about Rs 100-120 per tin of 15 kg.

While the oil mill industry daily requires 20,000 bags of groundnut, where one bag carries 30 kg, the daily arrival of groundnut currently stands at just 10,000-12,000 bags. Moreover, the industry's need goes up to 30,000 bags per day during festival period when groundnut oil demand rises.

"Prices may continue to increase in coming days and it will not end before the new season start as stocks of groundnut are almost nil this year. Moreover, festivals like Janmasthami, Navratri and Diwali may further boost demand for the oil, pushing its prices further," said Ravjibhai Mandanaka, president of Gondal Oil Mills Association.

The previous instance when groundnut oil prices touched an all time high was in January 2013, when retail prices reached Rs 2,250 per new tin of 15 kg. The prices had then fallen on account of severe decline in kharif groundnut production in the year 2012-13 to stand at 2.81 million tonnes in India.

Similarly in kharif 2014-15, groundnut crop output has been estimated at lower than 3.57 million tonnes, down from 4.71 million tonnes in 2013-14. For instance, production of the crop in Gujarat is estimated to be 1.44 million tonnes this year as against 2.50 million tonnes recorded last year.

"Generally, kharif crop of groundnut is used for crushing but with crop size remaining short and demand from peanut industry including exports remaining high, groundnut oil price have traded upside for most of the time. By end of October this year, it can go up to Rs 1,325 per 10 kg in wholesale market and Rs 2400 per 15 kg tin in retail," said Mandanaka.

Gujarat is the major groundnut oil producer which supplies the oil within the state and to Maharashtra, Andhra Pradesh, Karnataka, Delhi and other parts of India. There are nearly 220 groundnut oil mills in Gujarat but only 20 mills are working currently. Rest 200 mills have closed within past two months. The one that are running mills have also cut their working days to two or three in a week.

"Millers have no choice but to close their units since they are not getting sufficient supply of the raw material. Most of them are really small units which do not have any inventory facility as well," said Samir Shah, president of Saurashtra Oil Mills Association (SOMA).

In November last year, the Solvent Extractors' Association of India (SEA) had estimated country's groundnut oil availability for 2014-15 at 240,000 tonnes. The same is down by 170,000 tonnes or 41.50% from last year's 410,000 tonnes.

Meanwhile, the recent price rise is also forcing customers who cannot afford groundnut oil to shift to other edible oils such as cotton and palm oil, say retail traders.