Chana may remain under pressure for the near - term but eventually it may gain support from September onwards due to upcoming festivities. Therefore, we recommend accumulating long positions from lower levels, says Karvy Commodities.
In the month of February when we had come out with our seasonal report on Chana the price had declined by 40% while today in June the losses have extended to 50% and trading at Rs. 2800. Until today the physical spot prices are incessantly trading well below the minimum support price pegged by the government. While we look at the spot prices of the major physical market of chana we have noticed that the kantewala variety chana which is mostly traded across Madhya Pradesh markets declined drastically by 16 % to Rs. 2700 per quintal from last year. Such price fall was basically driven by higher carry forward stocks and lower demand. Even the crop quality was hampered this year owing to rains and hailstorms during its maturity stage. In the similar lines, the spot prices at Delhi and Akola market also fell by 13 % at Rs. 2790 and Rs. 2600 per quintal from last year. Generally the Rajasthan Chana prices which remain in premium over other markets had also declined and traded near other market prices. As of today i.e. 20th June Bikaner chana prices are quoted at Rs. 2600 to Rs. 2650 per quintal. In this regard, farmers' were lenient in selling their produce to government at MSP to realize better returns.
Chana made a historical high of more than Rs 4800 in August 2012 and since then, prices have been incessantly declining and as of 20th June, 2014, prices are trading near Rs 2800 per quintal, registering a negative growth of around 50 %. The major reason for the price fall is the sheer abundance of supply until 2013-14. But in 2013-2014, production declined and quality deteriorated owing to the vagaries of weather. The consumption is estimated to decline by 20 % to 10.16 million tons from the previous year. According to our study and as stated below in the commodity balance sheet, we believe that the demand and supply may remain near equilibrium this year. However, if any unprecedented demand arises than prices may likely to track the bull rally.
Another interesting fact which we would like to bring to notice is that in the last four years, chana's minimum support price (MSP) has been hiked from Rs 1760 to Rs 3100 per quintal till 2013-2014. Now, the query is whether Government will fix the minimum support price (MSP) of chana lower than previous year as we have mentioned in the beginning of our report that since 10 months spot prices were trading below MSP. According to our view, if consumption exceeds production then Government may take measures to encourage the farmers to increase the production so in that case we don't expect that Government should lower the MSP than existing levels as there is a likely possibility of consumption exceeding the production levels. Meanwhile, we expect that prices may also gain support in the coming months especially from September onwards due to upcoming festivities. Besan which is a derivative of Chana is used to prepare sweets and spicy food items and during the festival season consumption of besan generally increases due to which the crushing activities of chana also increases thereby supports the chana prices.
We believe that Chana may remain under pressure for the near - term but eventually it may gain support from September onwards due to upcoming festivities. Therefore, we recommend accumulating long positions from lower levels.
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