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Short Term Report on Guar Seed & Gum
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30 November 2009
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Short Term Report on Guar Seed & Gum
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Price action
The futures prices of Guar seed and Guar Gum have witnessed an unprecedented rally in 2009.
Price of guar seed surged to all time high during peak arrival season as the production plunged by
around 60% to 35 lakh bags (1 bag=100 kg) as against 85 lakh bags produced last year. The prices
surged sharply in the month of November following thin arrivals which raised the concern of
shrinking stock level. The December contract on National Commodity and Derivatives Exchange
rallied to historic high of Rs.2858 per quintal from a contract low of Rs.1870 per quintal, registering
a surge of approximately 53% while Guar Gum surged by 42% to Rs.5999 per quintal from Rs.4214
per quintal. Along with lower production, strong demand for gum, churi and korma also supported
the rally in both seed and gum prices.
Brief story
Guar or cluster bean (Cyamposis tetragonoloba) is a drought tolerant annual legume crop, mainly
cultivated in the northern parts of India as a kharif crop. This seed has a spherical-shaped
endosperm containing galactomannan gum, which forms a viscous gel in cold water. Guar seed is a
rain-fed monsoon crop that requires 8-15” of rain in 3-4 spells. It grows well in sandy soils and
needs intermittent rainfall with good sunshine. High rainfall can cause the plant to become leafy,
and reduce the number of pods per plant and seeds in pods, which affects the size and yield. After
harvest, the pods are sun-dried and seeds are separated manually, and the by-products called churi
and korma are used as cattle feed. Guar seed consists of three parts—germ (43-47%), endosperm
(35-42%) and the husk (14-17%). The seeds are processed in various stages like roasting, sieving
and polishing. The germ is separated from the endosperm and the two halves of endosperm are
called un-dehusked guar splits. The thin layer on the endosperm splits is removed by polishing and
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refined guar splits are obtained, and through various processes the guar powder is extracted which
is used in various industries.
Seasonality
The seed is normally sown during the second half of July to August after the monsoon rainfall starts,
and harvested during October and November. The crop requires 3-4 spells of rain during seed
setting and maturing, which is during September first week and the end of September.
Sowing Crop growth Peak arrivals Lean arrivals
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
Processing and uses
The extract from guar seed, guar split/gum, accounts for 29% (+/- 4% variance). The ratio of churi
and korma varies from 30% to 41% depending upon the quality of the seed. While split/gum is
further refined to guar powder, churl and korma are used as cattle feed.
Traditionally, guar seed is used for human consumption, cattle feed, medicinal purposes and also
for soil improvement. The immature pods are dried and fried as chips, and the green pods are also
cooked for human consumption. Plants are fed as green forage for cattle and the beans are also
boiled and fed to cattle, which is a good source of protein. Guar seed plants also have medicinal
importance—the leaves are eaten to cure night blindness, used as a chemotherapeutic agent against
smallpox, poultices for plague, cattle bellies, enlarged livers, head swellings, bone swellings, etc.,
since it is a legume, commonly used as cover crop and green manure.
Flowchart of Guar seed processing
Guar seed
Splits/gum (27-29%)
Husk & germ (70%)
Wastage (2-3%)
Powder Guar meal
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Guar seed uses: Percentage share
Guar splits are further processed into guar gum powder, which has large industrial uses. The guar
gum is used for various purposes:
Industrial uses: It includes the use of guar seed in oil well drilling, textile, printing, paper
making, explosives, mining, water treatment, etc. These sectors consume 50-55 percent of
guar gum.
Food: Human and animal foods like frozen foods, bakeries, dairy products, canned products,
beverages, etc., which consume 35-40% of the gum produced.
Pharmaceuticals: It is used in diabetic treatment, slimming aids and ointments, consuming
about 5% of the total guar gum.
Cosmetics and miscellaneous: It is also used in hair setting, soaping, shampoos, lipsticks,
mosquito coils, consuming the remaining 5% of the guar gum.
Production scenario - India
In India, it is largely grown in Rajasthan, Gujarat and Punjab. Amongst all the three major
producers, Rajasthan has a lion share of 50-60% in total output. Haryana and Punjab have emerged
as major producers in recent years. In Rajasthan, Jodhpur, Ganganagar, Hanumangarh, Bikaner,
Sirohi etc are major producing districts. The southern districts of Haryana and Punjab are major
producing districts.
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The pattern of rainfall in growing regions plays crucial role in deciding overall output because it is
largely grown in rain-fed regions of North-western India. The following table gives production
trend since 2000.
Table: Guar seed production in India
Year Production (in lakh tonnes)
2000-01 7 .00
2001-02 11.00
2002-03 3.17
2003-04 16.00
2004-05 5.00
2005-06 6.50
2006-07 7.50
2007-08 8.50
2008-09 8.50
2009-10* 3.50
According to trade sources, India’s guar seed production in 2009-10 seasons is likely to 3.5 lakh
tonnes, down by nearly 60% as compared with 8.5 lakh tonnes produced last year. The major
reason for decline in output was lower acreage, which declined by 50% in Rajasthan due to poor
rains and shift in cultivation to other remunerative crops.
Guar Gum Exports
The guar gum exports increased dramatically since 2005-06 following improvement in demand
from western countries as its uses spread to many areas like human consumption, in oil
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exploration, in pharmaceuticals etc. According to the Agricultural and Processed Food Products
Export Development Authority (APEDA), India had exported 2.11 lakh tonnes guar gum valued at
Rs.1125.75 crores in 2007-08 against 1.90 lakh tonnes in 2006-07.
Price outlook
The guar seed and guar gum futures witnessed a tremendous rally in November when the arrivals
were at peak level. The major reason for this rally was sharp decline in production level by 60%.
Both these commodities zoomed to all time high of Rs.2858 per quintal (guar seed) and Rs.5999 per
quintal (guar gum). We are anticipating good correction in short term as the demand might get
affected at these higher levels. However, long-term bullish trend will remain intact as the
availability of produce is limited and export demand for guar gum may pick up and might support
the prices.
Ratio analysis
The average Guar gum to Guar seed ratio for last five years, since the launch of the futures, is 2.50.
But, since, 2004 the ratio has been reducing for these two commodities. The average ratio for the
year 2004 was 2,76, while for 2005 it was 2.63, for 2006 it was 2.54, for 2007 it was 2.50, for 2008
it was 2.44 and for 2009 till now the average is 2.14. The highest ratio of 3.1 was seen on 27 July
2004 and the lower of 2.12 is for the 17 November 2009.
Table: Guar gum & Guar seed ratio
Year Average Ratio
2004 2.76
2005 2.63
2006 2.54
2007 2.50
2008 2.44
2009 2.14
The declining ratio between Guar gum and Guar seed do signify that the downfall in Guar gum
prices have been more as compared to the fall in guar seed prices. For example, during June’09 to
August’09, Guar gum prices have risen by 50% from 3513 levels to 5270 levels. On the other hand
the gain in Guar seed remained limited to 32% from 1766 levels to 2337 levels. During the same
period the ration has grown from 2.06 to 2.27.
While during Sep-Oct 2009 the ratio has fallen from 2.27 to 2.06 levels as the fall in Guar gum prices
was higher than the fall in Guar seed prices. Guar gum prices have fallen by 14% from 5270 levels
to 4488 levels while Guar seed has fallen lower by 9% from 2337 levels to 2109 levels.
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Recently, Guar seed prices have risen to all time high levels backed by the factor of significant
downfall in production. In the near term when Guar seed prices are expected to take smart
correction from the current high levels, the ratio is expected to narrow down further as fall in Guar
gum will be more as compared to fall in Guar seed prices. The ratio is expected to narrow down to
2.06 levels from the prevailing 2.12 levels. Backed by the medium to long term bullish view for Guar
seed on account of lower production prices are expected to trade higher. The gain in Guar gum is
expected to be higher on account of gaining export demand with varied usage. The gain in Guar
seed will remain limited and hence the ratio is expected to widen to 2.5 levels by the month of
March to May 2010.
Chart: Ratio analysis for Guar gum and Guar seed
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
0
1000
2000
3000
4000
5000
6000
7000
1/0
/19
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9/1
/20
04
10
/9/2
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1/1
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41
2/2
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42
/1/2
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53
/9/2
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/16
/20
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5/2
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56
/29
/20
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8/6
/20
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9/1
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1/2
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/25
/20
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3/3
/20
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4/1
0/2
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65
/17
/20
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6/2
2/2
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/29
/20
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10
/7/2
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1/1
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2/1
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61
/29
/20
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3/6
/20
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4/1
2/2
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75
/21
/20
07
7/2
7/2
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79
/4/2
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71
0/1
3/2
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1/1
9/2
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2/2
7/2
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72
/2/2
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83
/11
/20
08
4/1
9/2
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85
/27
/20
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7/3
/20
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8/8
/20
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9/1
6/2
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81
0/2
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81
2/1
/20
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1/7
/20
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2/1
3/2
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93
/23
/20
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4/2
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96
/8/2
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97
/14
/20
09
8/2
1/2
00
99
/26
/20
09
11
/5/2
00
9
Gum Seed Ratio
Guar Gum – Technical Analysis
Guar gum prices witnessed a rally in the year 2009 by gaining as much as 44.57% after making a
low of 3169 (life time low) during December 2008 and currently trading higher at 5870 levels.
Market is witnessing a crucial support at 5500-5700 levels sustain above the same expected to push
the prices further high in the near term.
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However, prices are hovering in trend channel and likely to test higher trend line suggesting an
upside movements to be continued in the coming days to weeks time period. Moreover, market is
witnessing a stiff resistance at 6175 levels (life time high) significant break above the same may
lead to create a new high in the short term.
Sling shot principle: According to the sling shot principle in the above chart 15 periods EMA
(Red color) took cross over the 50 EMA (Green) periods suggesting a bullish trend in the near term.
Ichimoku Analysis:
Ichimoku cloud chart clearly indicating a “Medium bullish signal” for the Guar gum prices on
NCDEX platform. Market is witnessing a crucial support at 5000 levels (Senkuspan A & Senkuspan
B) sustain above the same expected to trade higher.
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Fibonacci Principle:
According to Fibonacci principle market has breached the 76.4% retracement (of the range 6175-
3220 levels ) and currently trading near to its life time high of 6175 levels, if market fails to breach
the same then prices are expected to see a correction before resuming its uptrend. On the other
hand, a significant break above the same may lead the prices up to 6700 levels in the medium term.
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GANN:
Elliot Wave Theory:
Currently market is trading in the intermediate wave (5) of primary wave 1. It may end around
6070 levels or may extend up to 6500 levels as 5th wave has a general tendency to extend. This
completes the Primary wave 1.
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We expect Primary wave 2, a corrective wave to take correction close to 5300 levels and this may
end the primary wave 2.
We expect Primary wave 3, an impulsive wave to trade higher up to 8500 levels.
As per Elliot wave theory prices still have the potential to trade higher in the short term.
GANN principle:
According to Gann principle market is trading above the 45 degree levels suggesting further upside
movements (Bullish trend) in the near term. Market is moving in 1X1 ratio i.e. 1 unit of time
movements leads to 1 unit of price movement. Market is witnessing a stiff resistance at 6175 levels
sustain below the same correction cannot be ruled out.
Commodity Channel Index (CCI): The CCI indicator is also suggesting a bullish trend, which is
treading above the +100 levels sustain above the same confirms that market is under the control of
bulls and one can be on long position until the CCI cross over below +100.
Our Stance: We expect Guar gum prices to trade on higher note at NCDEX platform and
recommend buying for the near to medium term range. If market fails to breach the resistance level
at 6100 levels a correction cannot be ruled out.
Major Support: 5500, 5000. Resistances: 6200, 6800
Indicator Analysis table:
Indicators Period Value Trend
RSI Month 0.67 Bullish
MACD Monthly Above”0” median Bullish
CCI Weekly +100 above Bullish
Gann Angle Weekly 45 degree Bullish
Fibonacci levels Weekly Above 78.6% Bullish
Ichimoku Weekly Prices trading above cloud. Chikou is
above price. Crossover in the cloud.
Medium term
Bullish
Slingshot Weekly Cross over above 50EMA by 15 EMA Bullish
Wave Count Weekly Intermediate Wave (5) of Primary wave 1 Bullish
Note: We have emphasized more on guar gum in our Technical Analysis as the price charts,
technical tools and indicators are more promising than guar seed trend. However, we wish to tell
our investors about the guar seed price direction.
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Guar seed – Technical Analysis
Guar seed future prices witnessed a rally for the past three months by gaining as much as 21% and
currently trading higher at 2832 levels. Market is likely to extend its gains in the near term
supported by the following technical tools:
Trend channel: In weekly chart guar seed prices are hovering above the trend channel which is
suggesting a higher potential to be continued in the near term.
Fibonacci projection: According to Fibonacci projection market is witnessing a stiff resistance at
2970(100%) projection; significant break above the same may lead the prices to test 3300 (123%)
levels.
Sling shot: In Guar seed weekly chart 15EMA took crossover on 50 EMA suggesting a bullish trend
for near term.
Commodity Channel Index (CCI): The CCI indicator is treading above +100 levels suggesting long
position until and unless market fails to breach the same (+100) levels.
Supports: 22700, 2560. Resistances: 2960, 3100.
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Disclaimer
The report contains the opinions of the author that are not to be construed as investment advice. The author, directors and other employees of Karvy, and its affiliates, cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above-mentioned opinions are based on the information which is believed to be accurate and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading. Commodity derivatives trading involve substantial risk. The valuation of the underlying may fluctuate, and as a result, clients may lose their entire original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by, or from, Karvy Comtrade that you will profit or that losses can, or will be, limited in any manner whatsoever. Past results are no indication of future performance. The information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management, or investment advisory services. The reports are only for information purposes and not to be construed as investment advice. For a detailed disclaimer please go to following URLs: http://www.karvycomtrade.com/disclaimer.asp http://www.karvycomtrade.com/riskDisclaimer.asp
