With a crop size of just Rs 6,000 crore, castor seed is among the most traded commodities on India’s largest farm futures trading platform, the National Commodity & Derivatives Exchange (NCDEX).
Castor seed’s monthly turnover on the NCDEX is double the crop size due to high volatility and rising prices. There has been a spurt in trading interest over the last three months and in two of them it has been the most traded commodity on the bourse.
Guar used to be most traded commodity on the NCDEX but after curbs on excessive speculation, the counter lost sheen. Over the last year refined soya oil has been the most traded but in December-January castor seed provided over 20 per cent of the exchange’s volume. In February it fell to 15 per cent. (TOP-10 TRADED COMMODITIES)
Data collated by the Forward Markets Commission (FMC), the commodity market regulator, showed castor seed contributed 27 per cent of the NCDEX turnover at Rs 104,549.87 crore in December 2013. "Castor seed is one of the more liquid contracts on the exchange. The increased turnover over the past three months reflects the underlying fundamentals. Trading in futures contracts increases on market expectations of demand and supply," said Samir Shah, managing director, NCDEX
Castor seed is a seasonal commodity commonly harvested in November. Extended rain and late sowing caused a delay in the new crop reaching mandis last year. “This is the time when actual users procure from mandis and store in warehouses for crushing in the off season. Hedging increases during this period,” said Ashok Mittal, Chief Executive Officer of Emkay Commotrade, a city-based commodity broking firm.
This season is, however, different in terms of lower acreage and output estimates. India’s castor seed production declined from a record 2.29 million tonnes in 2011-12 to 1.96 million tonnes in 2012-13 due to a fall in area sown. Output is likely to decline further to less than 1.18 million tonnes this year. With a carryover stock of 3,72,000 tonnes, the total availability of castor seed is expected to remain at 1.21 million tonnes in 2013-14. The area under the crop shrunk from 1.47 million hectares in 2011-12 to 9,84,000 hectares in 2013-14 as prices fell.
“Castor seed production for 2013-14 is bound to be less than the annual demand for castor oil export. Due to tight supply and inelastic demand for castor oil, we are expecting a huge shortfall. We expect castor oil prices to rise 15 per cent to Rs 70,000 a tonne,” said Manoj Agarwal, Director of the Gujarat-based Shivam Oil Mills.
Demand for castor oil has spurted in the past few weeks. Exporters have signed contracts for about 5,000 tonnes in March alone. Stockists and traders are finding it tough to procure seeds.
Dorab Mistry, Director of Godrej International, said while presenting a paper in Kuala Lumpur on Wednesday, “The most bullish outlook belongs to Indian castor oil, where we have had a smaller crop and a lower carryover. Demand for castor oil is virtually inelastic. After many years of poverty and exploitation--which is why production is declining--Indian castor seed farmers will see remunerative prices."
Castor seed prices recovered from an early season fall to Rs 4,000 a quintal to trade currently at Rs 4,329 a quintal. According to Magan Bhai Patel, Gujarat Pradesh Pramukh of the Bhartiya Kisan Sangh, farmers have decided to be price givers this year. With 23 awareness campaigns concluded recently in Gujarat, castor seed farmer are aware of the production numbers and they are themselves dominating the market.