Starch manufacturers to face tough days ahead as maize prices shoot up

Starch manufacturers might have a tough going in the new year as maize prices have started rising, as a result of an inadequate monsoon affecting crop arrivals in some states. In the past week alone, maize prices have increased by Rs 100 a quintal. Starch-sector entities are also concerned that farmers might hoard of crops in anticipation of a further increase in prices. Another worry for the sector is the smaller size of grain for owing to poor rainfall in producing states. This will reduce the quantity of starch extracted from grain, further undermining profits.

The major states providing maize this part of the year are Maharashtra, Karnataka and Andhra Pradesh. North Indian states, such as Bihar, will harvest maize during April-May.

The earlier crop year (April 2013-March 2014) was profitable for starch companies as the price of maize remained between Rs 1,000 and Rs 1,200 a quintal. This was a substantial drop from the previous year's Rs 1,400 to Rs 1,600 a quintal.

Prices in December have been between Rs 1,370 and Rs 1,400 a quintal. The worry for the sector is that these might rise further.

"Due to inadequate rains, the grain size of maize is smaller and that would affect the recovery of starch from maize," said K K Sardana, joint managing director of Sukhjit Starch and Chemicals at Phagwara in Punjab. The recovery of starch from maize is 64-66 per cent (64-66g of starch can be extracted from 100 kg of maize). "Even if it decreases by one per cent, we lose Rs 30 per kg."

Maize prices, which remained low in the US owing to high production, have recovered from $145 to $165 a tonne at the Chicago Board of Trade.

Price movement in the international market might trigger domestic prices in the same direction, according to Vishal Majithia, director of Sahyadri Starch and Industries. "Due to intense competition in the domestic market, we are not able to pass on the increase to our consumers," he added.

The movements would depend on government participation, too. There is lack of clarity over maize procurement in Karnataka, where the government has proposed Rs 1,100 a quintal and demanded Rs 200 a quintal from the Centre. The issue has not been sorted.

If farmers get an assured return of Rs 1,300 a quintal, prices would go up further. Export prospects are bleak at the moment, owing to the high price the grain commands.