Hot Spot. Lower stocks to spice up turmeric

The drought condition in 2015, while raising concerns on lower production of turmeric, caused its prices to trade higher in the growing season of 2015 (kharif crop). Excessive rains prior to harvesting in Andhra Pradesh and Tamil Nadu added fuel to the fears of lower production. Turmeric futures for May’16 delivery touched a five-year high at ₹11,152 per quintal in late November’15 and the bullish trend continued till the first half of January 2016.

But prices started to decline from the second half of January, plunging to ₹8,104/Q towards January end. Then, between February and May, they fluctuated between a low of ₹8,000/Q in May amidst arrival pressure and a high of ₹9,480/Q supported by steady demand. Demand for good quality turmeric from industrial buyers and stockists/traders limited the drop in prices from arrival pressure.

India accounts for four-fifths of the world’s turmeric production and exports. Andhra Pradesh and Telangana, Maharashtra and Tamil Nadu are the key turmeric producing States, contributing over 80 per cent of India’s total production.

India also caters to over 80 per cent of the world’s turmeric import. It exported 88,500 tonnes of turmeric in 2015-16, 111 per cent higher than the targeted quantity and 3 per cent higher than the exported quantity of 2014-15.

The major export destinations are Iran, the UAE, Saudi Arabia in Gulf region, Malaysia, China, Japan, Pakistan and Sri Lanka in Asia, the EU, and the US. The countries which consume more meat tend to import more turmeric for its use as preservative and colourant.

During March-May, which is the peak arrival season, prices tend to remain range-bound due to arrival pressure and good demand. Prices start gaining strength in the lean season that starts around June end or July, by that time, farmers sell most of the turmeric harvested by them to stockists/traders due to fear of rains damaging the quality of turmeric and/or for meeting their cash flow needs.

The demand from millers is likely to kick-start from August onwards with onset of festive season in India (August-October). Mills run their operation from August to May. So, increased domestic demand tends to drive turmeric prices up from August onwards.

According to market sources, total turmeric arrival during February-May’16 in key States was higher by 90 per cent compared to the last season amid good prices and higher production than that in 2014-15.

Turmeric arrivals have been higher in February, March and April compared to last year but the arrivals have slowed in May.

As per market sources, production year 2015-16 started with carry-forward stocks of 1.4 lakh tonnes compared to 2.1 lakh tonnes in 2014-15. The consecutive back-to-back droughts in India have impacted turmeric production in 2014-15 and 2015-16. India produced 2.52 lakh tonnes of turmeric in 2015-16, lower by 15 per cent than the previous year.

Production declined on account of lower acreage in Tamil Nadu and comparatively low yield in Maharashtra, Andhra Pradesh, and Telangana.

This makes the total supply for 2015-16 at 3.57 lakh tonnes against the consumption demand of 3.46 lakh tonnes, leaving stocks of mere 0.11 lakh tonnes compared to 1.4 lakh tonnes in 2014-15, down by over 90 per cent. The scarcity of stocks at the time of pick-up in domestic and export demand is likely to provide a firm undertone to the market.

The year 2016 is going to witness a tight supply-and-demand situation with lower carry forward stocks.

Prices are expected to rise during September-November on account of festive season demand and export demand which picks up in November-December.

Turmeric prices may see a correction on good sowing reports coming from key producing regions on account of good rainfall received till June end.

We may witness higher turmeric production in 2016-17 but any sharp fall in prices is unlikely as new crops will be available only from February onwards. Till then, the supply shortage is likely to happen in case of demand pick-up from festive season, and export, and thus provide a boost to turmeric prices.

The writer is VP and Head, Agriculture, Food, and Retail, at Biznomics Consulting