Chana Quarterly Report

7/28/2019 Chana Quarterly Report

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KCSL Chana Quarterly Report Please see the disclaimer on the last page 1

August October 2012


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As per the commodity preview 2012 report released on December 2011 the annual target for Chana was atRs.3950 4000/qtl. Price target for the commodity has been achieved much earlier than anticipated. The rally in

prices was mainly due to the lower opening stocks and uncertainty in weather affecting the potential supply.

Currently the prices are trading near Rs.5000/qtl in the Delhi spot markets. Following is the domestic and

international market scenario so far in the current season (2011-12). In India, Chana is sown during October-

November and harvested during March April.

2011-12 so far

Domestic:

The new bull rally in Chana began from May 2011 onwards, after the peak arrival season had faded. Prices

witnessed sharp gain in 2011 (Jan-Dec) of over 31% as compared to prices in 2010. The rally in prices was

combined effect of marginal decline in domestic production and significant fall in 2010-11 Australian Chickpea

production. Australia is the largest supplier of Chickpea to India.

Just before the 2011-12 season started the government of India raised the MSP for chana boost the production of

pulses. The MSP was increased by 33% or Rs.700/qtl to Rs.2800/qtl. But the area under the commodity for 2011-

12 declined by 4% on weather concerns. Erratic weather during time of growth lowered the yield by around 13%806.4 kg/ha achieved previous year. While the acreage was higher than the normal but low yield resulted in lower

production by 16% to 6.3 million (mn) tons compared to the previous year production of 7.5 mn tons.

International:

Year 2011s price rally in Indian markets was mainly due to significant decline in Australian production. In 2010 -11

production in Australia was pegged at 0.46 mn tons, down by 10% year on year. Lower imports from Australia and

Tanzania impacted supplies to India and resulted in further downward revision in Indian ending stock numbers

23rd

July 2012


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from 1.45 mn tons in 2009-10 to 1.17 mn tons in 2010-11. These nations contribute to nearly 70% and 17% of thetotal imports in the country during 2010-11.

India Supply and Demand Analysis: August-October 2012

SUPPLY

Production

During the year 2011 Chana prices touched record. Despite the annual gain of nearly 31% and higher MSP offered

by the government the commodity failed to gain space in the field. This was mainly due to the late withdrawal of

southwest monsoon, which was delayed by more than 3 weeks. Rains continued till late in crucial Chana growingregions of Madhya Pradesh and Rajasthan. Total area under Chana was recorded at 8.96 mn hectare compared to

9.34 mn ha in previous year down by 4%, but above the seasons normal at 7.61 mn ha. Decline was registered in

key producing states of Rajasthan, Maharashtra, and

Karnataka due to unfavorable weather during the time of

sowing. Some area decline in MP was also due to diversion

to other crops like wheat, oilseeds and other pulses.

Uncertainty in weather during the crucial growth stage

affected the crop yield that dropped to a decade low. KCSL

Research estimates that the yield in current year could be at

705.8 kg/ha, compared to last years yield of 806.4 kg/ha

down by 12.4%. Similar yields were noted in 2002-03 at 717

kg/ha. Productivity at major producing state of Rajasthan

and Madhya

Pradesh

declined significantly by 12% and 10% respectively.

As a result Chana output declined to 3 year low at 6.32 mn tons

compared to 7.53 mn tons in 2010-11, down by 16%. Fall in

production is expected to have declined by 7% in Madhya

Pradesh, Maharashtra by 23% and Rajasthan by 30%.

36%

17%5%

10%

12%

20%

State wise production share for 2011-12

Madhya Pradesh Rajasthan Karnataka

Maharashtra Uttar Pradesh Others

Source: KCSL Research & Ministry of Agriculture and Government of India


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Imports

Lower production for the year 2011-12 could increase countrys dependency on imports. For the year 2011-12 we

estimate chana imports to be at 0.2 mn tons, as compared to 0.1 mn tons last year. The imports are expected to

be slightly higher compared to last six year average imports of 0.18 mn tons. Indias imports during 2010-11 were

at 0.1 mn tons, lowest since last decade due to low imports from in Australia and Tanzania. Out of total imports,

Australia contributes more than 70%. India also imports Chana

from Tanzania, Myanmar and USA; imports from these

countries however have not been consistent.

DEMAND

Exports

Indian trade in Chana is not consistent; depending on the

domestic production number India either turns a net exporter

or a net importer. Indian Chana exports constitutes mainly of

Kabuli variety. Out of the total chana production in India

Kabuli variety consists nearly 5-7%. During the beginning of the season traders were anticipating higher

production for kabuli variety but it is unlikely to be the case now. Kabuli Chana is expected to be unchanged from

last year levels. Low production 2011-12 is expected to reduce the exports sharply by 67% to 0.06 mn tons

compared to the 2010-11. KCSL Research expects export for the current year to be 0.18 mn tons. Exports are alsoexpected to be lower due to price disparity. Currently Indian Chana is quoting at $100 premium to Mexico Chana

in international market. Mexico is the major competitor for Indian variety and usually quotes at a premium of

over $50 to Indian origin. High domestic prices have provided an incentive to Indian traders to sell Chana in

domestic market rather than export.

Consumption

Since last one year Chana prices have been making

new highs. This is expected to have resulted in

demand rationing. Industry bulk users could have

shifted towards cheaper substitutes. Yellow peasare used as substitute for Chana mainly in flour

industry. Higher price for the pulse and potential of

shift in demand for the cheaper substitute could

lower the consumption this year. KCSL Research

expects chana consumption to be lower by 9% at 7

mn tons compared to 7.73 mn tons during last year.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2006-07 2007-08 2008-09 2009-10 2010-11(e) 2011-12(f)

Production Consumption and Ending Stocks in Million tons

Production Consumption Ending Stocks

Source: KCSL Research & Mini stry of Agriculture Government of India


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Significantly high prices for edible oil meal across the world are seen due to production failure in South Americaand now USA. South America is the major supplier for soy meal in the world followed by USA. This could result in

a shift of demand towards yellow peas for cattle feed and fodder especially in France. Such a shift in demand

could be seen in India as well where currently the meal prices for all the oil seeds are at record high. We could see

some demand emerge for yellow peas for cattle feed and poultry feed.

Stocks

Year 2011-12 started with a 4 year low stocks at 1.17 mn tons, or down by nearly 19% compared to last year. The

total demand during 2010-11 increased by 2% to 7.91 mn tons while the supply declined by 2% to 9.08 mn tons.

For the year 2011-12 low production and low

beginning stocks could shrink the total supply by

15% to 7.7 mn tons while total demand is also

expected to decline by 10% to 7.09 mn tons.

Significant decline in supply as compared to fall in

the demand could lead to sharp fall in ending stock

numbers. The ending stock numbers are estimated

at decade low. Previous low ending stock numbers

were recorded at 0.88 mn tons during year 2002-

03. Ending stock numbers for year 2011-12 is

estimated at 0.60 mn tons or down by 49% as

compared to last year. The stock to usage ratio could fall to all time low at 8.5% as compared to 15% during 2010-

11.

CHANA & YELLOW PEAS

Yellow Peas

Yellow peas are used as substitute for chana and are also used for blending in flour industry. The demand for

yellow peas is met by imports from France, Ukraine, Russia and Canada. New crop shipments are expected during

August and September. As per trade sources during 2012-13 imports in India is expected to be steady as that of

2011-12 estimated imports of 1.6 mn tons. This is because the exporting countries like France could increase their

domestic consumption for yellow peas due to high global meal prices. Significantly high prices for edible oil meal

across the globe are seen due to production failure in Americas. South America is the largest supplier for soy meal

in the world. Such a shift in demand could be seen in India as well where currently the meal prices for all the oil

seeds are at record high. We could see some shift towards yellow peas for cattle feed and poultry feed.

Ratio and Spread Analysis

April- March 2008-09 2009-10 2010-11(e) 2011-12(f)

Opening stock 1.25 1.42 1.45 1.17

Production 7.08 7.47 7.53 6.32

Imports 0.20 0.34 0.10 0.20

Total Supply 8.53 9.24 9.08 7.70

Consumption 7.01 7.58 7.73 7.04

Exports 0.10 0.20 0.18 0.06

Total Demand 7.11 7.78 7.91 7.10

Ending Stocks 1.42 1.45 1.17 0.60

stock to usage in % 20.05 18.66 14.82 8.46

SUPPLY -DEMAND

in Million tons

Source: KCSL Research, GOI & DGFT


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During November 2006 the spread as well as the ratio between chana and yellow peas was at its peak at 1899 and2.5 respectively. During this time we saw a decent correction in chana prices due to shift in demand for cheaper

substitute like yellow peas. This year as well we have seen a

similar pattern however with a twist. While the spread has

breached previous high and is near 2000 the ratio is still at

1.8. This disparity is because the demand for chana is rising

at a higher pace compared to yellow peas. As mentioned

earlier the ongoing weather concerns at USA are affecting

global meal supply leading to record prices for meal

internationally as well as in India. Hence, feed demand is

expected to shift towards cheaper substitutes like yellowpeas. Keeping the current supply and demand scenario for

chana in mind, the price for chana is expected to rise faster

as compared to yellow peas.

INTERNATIONAL

Australia

In Australia sowing begins in April-May and harvest begins during October-November. The supply and demand

balance for Australia is estimated to remain tight for year 2011-12.

As per STAT market research and ABARE the beginning stocks for2011-12 were down by 23% to 0.06 mn tons due to 10% decline in

production during 2010-11. The disruptions in production started

from year 2010-11 where the yield declined sharply by 39%

lowering the production to 0.46 mn tons.

In 2011-12 the production numbers were estimated slightly higher

by 5% to 0.48 mn tons however with the low beginning stocks the

total supply increased marginally by 1% in comparison with the

total demand which increased by 14%. Rise in total demand for the

commodity was mainly due to rise in exports to 0.49 mn tons, upby 10%. Lower production in India increased the demand for

Australian chickpea. Higher prices globally increased the sowing

intentions in Australia and the seed usage for 2012-13 is estimated higher by 95% to 0.04 mn tons. Ending stocks

are estimated sharply lower by 92% at 0.005 mn tons as compared to 0.066 mn tons during 2010-11. The stock to

usage ratio is estimated lowest below 1%. Currently the sowing is being carried out in Australia. High global prices

are expected to see higher Chickpea acreage in Australia. However, looking at the vagaries in weather across the

globe yield remains uncertain. The weather conditions in key producing region of Queensland and northern New

South Wales have to be closely monitored as the crop enters the growing stage during coming days.

2010-11 2011-12

Carryin 0.86 0.67

Production 4.62 4.85

Total Supply 5.48 5.52

Exports 4.53 4.97

Seed 0.23 0.45

Feed and Other 0.05 0.05

Total USE 4.81 5.47

Ending Stocks 0.67 0.05

Stock to Usage 0.14 0.01

SUPPLY-DEMAND in million tons

Source: KCSL Research & Forecasts by STAT Market

Research based on data from ABARE

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0

500

1000

1500

2000

2500

Jul-05

Nov-05

Mar-06

Jul-06

Nov-06

Mar-07

Jul-07

Nov-07

Mar-08

Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

Nov-11

Mar-12

Chana & Yellow peas absolute spread and ratio

spread ratio

Source: KCSL Research & NCDEX


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Tanzania

Tanzania is the upcoming destination to cater global

demand for chickpeas. The production trend in the

country is rising at a steady pace since last 5 years at a

CAGR of 5%. And as per trade sources the production

prospects for 2012 is estimated higher by around 15-

20% as compared to last years production of nearly

0.038 mn tons. Rise in production could lead to higher

exports to India during 2012-13. India has been major

destination for Tanzanian exports since last 5 years.

Out of total imports in India Tanzania contributes to

nearly 15-17% and India contributes roughly around

50-60% of Tanzanias exports during 2010-11.

FUNDAMENTAL OUTLOOK FOR NEXT QUARTER

PRICE OUTLOOK

At the futures platform we expect the prices to test Rs.5400-5450 on the higher side while prices could seek

some support near Rs.4450-4500.

After analyzing the supply and demand situation in domestic and international markets KCSL Research expects the

prices to rule firm and the bull rally could extend for one more quarter, before the fresh supplies are infused.

In India the peak arrival season has come to an end and the supply pressure has receded. The demand is being

catered mainly by the stocks and imports. Higher MSP, better price realization from commodities and profits from

commodities like Guar has increased the holding capacity of the farmers and traders. Stockiest are in no hurry to

liquidate the Chana inventories in anticipation of higher price.

Imports are expected from Euthopia and Tanzania during August and September. As per trade sources the

quantity is expected to be small nearly 20000-30000 tons. Major imports are expected from Australia during

November and December. Weather uncertainties will keep the Australian crop uncertain.

On the demand front, domestic demand for chana will remain robust due to the busy festive season in next

quarter. Also during the monsoon season demand for fried food remains high were gram flour is used largely.

Risk to this base scenario remains that the prices for Chana are trading near its record levels. Being an essential

commodity this has attracted the governments attention. Fear of ban on futures trade or any measure like

implementation of stock limits could arrest the price rally for short term. But the demand and supply situation

remains tight and the ongoing weather concerns could keep the sentiments in the market bullish.

25000

27000

29000

31000

33000

35000

37000

39000

Tanzania Production in tons

Source: FAO


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TECHNICAL OUTLOOKNCDEX Chana Monthly Chart

Source: Telequote

A Channel breakout (R, S) can be seen on the NCDEX Chana Monthly chart with higher top and higher bottom

formation on it. The breakout was so significant that price rallied breaching the previous top of Rs 3345 and made

a new life time high of Rs 4850. Currently price is trading firmly and heading towards the strong resistances and

next level of Rs 5300 5400. The near term support is at Rs.3948 level (Break out). Until the support is breached

buying on dips is advisable. RSI is also firm and holding near the overbought position. Any decline will be a good

opportunity to buy. Only when price breaches the support of Rs.3948, bearishness trend would start.

Strategy- Buying near supports is advisable for the target 5300, then 5400.


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Prerana Desai

VicePresident- Research

[email protected]

Dharmesh Bhatia

AVP Research- Technical Analyst

[email protected]

Faiyaz Hudani

Sr. Research analyst- Spices, Grains

[email protected]

+91-22-66528837

Amit Sajeja

Sr. Research analyst- Technical Analyst

[email protected]

+91-22-66528847

Sudha R. Acharya

Research analyst- Edible Oil, Pulses

[email protected]

+91-22-66528809

Madhavi Mehta

Research analyst- Energy, Bullion

[email protected]

Ajay Baheti

Associate Research- Technical Analyst

[email protected]

+91-22-66528845

Priyanka Jhaveri

Research analyst- Base Metals

[email protected]

+91-22-66528848

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