Outlook mixed for spices complex

Over here, we look at the spices complex and how they are headed in the coming days.

Pepper prices are under pressure now. Higher arrivals and projections of production being better this and next year are affecting sentiments. Prices in Kochi, the major spot market, are currently hovering near ₹545 a kg, down over 30 per cent from its record levels. Earlier, supply concerns and steady demand lifted pepper to ₹822 in mid-2014. Also, unfavourable weather and uncertainty over the 7,000 tonnes of tainted pepper seized by the Food Safety and Standards Authority of India on reports of adulteration too had raised concerns over the product availability.

Pepper production in India is likely to be 50,000 tonnes this season, while production in 2015-16 is expected to be around 70,000 tonnes, the highest since 2002. Global production is also expected to be on the higher side. According to the International Pepper Community (IPC) report, global production during 2015 is pegged around 374,200 tonnes. Total production of IPC member countries is estimated at 3,44,500 tonnes – higher than the last year’s 2,88,700 tonnes. Looking ahead, the weakness will continue this year due to higher crop expectations coupled with hopes of the tainted pepper being released. This will lead to a supply glut in the market. Major rallies beyond the earlier highs are unlikely and a negative bias is likely in the near future.

Cardamom is trading firm in the futures market, while in the spot market, it has been under pressure. With the crop season set to end soon, quality concerns are probably lending support at the lower end. Limited availability of exchange-specific quality produce support MCX futures. However, sluggish demand weighs on market sentiments amidst ample stocks.

Production of small cardamom in the current crop is estimated to be around 20,000 tonnes, which is 2,000 tonnes lower than that in the previous season. Heavy rain in cardamom growing areas in Kerala initially raised concern over production and the crop for this season. Production in Guatemala, the top producer of small cardamom, is likely to be lower this year.

MCX cardamom is currently trading near a three-year high of ₹1,132/kg against last year’s average of ₹820. Average prices for cardamom have been trapped in ranges in the spot market for the last three seasons due to increased global production. The spot price outlook of the commodity is bearish, but prices on the futures market could gain momentum.

After witnessing steady trading last year, the outlook for turmeric since the beginning of 2015 has been optimistic. The most active NCDEX April contracts are currently trading at ₹8,446 a quintal against ₹7,160 during the same period a year ago. Lower arrivals and demand from domestic buyers are supporting prices. Availability of good quality spice is lower. According to traders, though carryover stocks are ample, traders are holding the produce on expectations of a surge in prices. Also, due to high moisture content in the newly-arrived produce, demand for the carryover stocks from last year is on the higher side. Worries over decline in production too are weighing on the crop. Agriculture Department estimates put turmeric production this year at around 3.7 million bags compared with 5.2 million bags a year ago.

Delay in sowing due to erratic monsoon prompted farmers to plant the crop on lower area in States such as Tamil Nadu and Andhra Pradesh as well as growers turning their focus to other short-term crops owing to lower remuneration last year is pointing to a positive bias.

If the concerns over production continue, prices are likely to rise further. On the NCDEX, ₹9,600/quintal would be a strong upside obstacle for prices, which if cleared convincingly, would be an early signal of further upside journey.

The writer is Senior Analyst/Research Head, Geofin Comtrade Ltd. Views are personal.