Traders rush to book castor seed on lower output estimates

Opportunistic profit booking increases volatility in futures market

The traded volume and turnover in castor seed contracts hit an all-time high on the National Commodity & Derivatives Exchange (NCDEX) on January 1 on increased hedgers’ participation amid expectations of a drastic decline in output this year.

The total volume of trade hit 233,620 tonnes, recording a turnover of Rs 1,094.94 crore on January 1. The traded volume declined steeply the following day to 96,650 tonnes, generating a total revenue of Rs 448.17 crore on January 2. However, there has been virtually a marginal decline in open interest, the barometer of trading interest, which settled at 163,550 tonnes on January 2, compared to 164,200 tonnes in the previous day.

In the two days alone, castor seed price for delivery in February hit the lower circuit to close at Rs 4,503 a quintal from the level of Rs 4,690 a quintal on January 1. The region-specific commodity recorded a sharp volatility in prices, though, in the past few trading sessions.

“Castor seed price is highly volatile in the futures market due to lower output estimates and opportunistic profit booking by traders,” said Ashok Mittal, CEO of Emkay Commotrade. A month ago, castor seed price started its journey from Rs 4,352 a quintal for delivery in February on the NCDEX, hit the lifetime high of Rs 5,097 a quintal on December 20 again touched Rs 4,151 a quintal on December 28 before closing at Rs 4,503 a quintal on January 2. On Friday, however, the oil seed was trading at Rs 4,544 a quintal, a marginal rise from the previous day.

Looking at price volatility, NCDEX has levied additional special margins of 10 per cent on long side and five per cent on short side which traders urged to abolish immediately.

“The exchange should levy equal margins in both sides. Restricting traders to take their positional call through levy of margins is not the right practice which the exchange must consider immediately. Levying unequal margins defeats the objective of price discovery, the basic purpose of having a futures platform,” a senior official of a leading edible oil producing company.

Meanwhile, castor seed output in India is likely to decline by 40 per cent this year on lower acreage and unfavourable climatic condition in major producing states in the beginning of the sowing season. Total castor seed output this from the new season crop is estimated at one million tonnes, against 1.4-1.5 million tonnes in the previous year.

Sowing area was lower this year by 35-40 per cent coupled with a severe decline in estimated yield due to inconsistency in the monsoon rainfalls in the major growing regions. Both Gujarat and Andhra Pradesh, India’s two largest growing states witnessed shortage of rainfalls during sowing period.

“Farmers could not sow castor seed even in their usual area resulting into lower acreage this year. Over and above, yield is also expected to remain lower. Consequently, castor seed output is estimated to remain lower this year,” said Manoj Agarwal, director, Shivam Oil Mills, a Palanpur (Gujarat) based edible oil producer and retailer.

With a carry-over stock of 300,000 tonnes, total availability is expected to remain at 1.4 million tonnes. As against the demand of castor seed annually stands at 1.8-1.9 million tonnes to extract oil for medicinal use. India produces and fulfills 90 per cent of castor oil demand worldwide. The crop sown in September is harvested through picking of seed in five – six trenches, the first of which begins in January.

Dorab Mistry, director of Godrej International, said India would require at least 0.3 million tonnes of additional output this year to meet rising castor seed demand.