With covid improving in major parts, the world economies seemed to be getting back to normalcy. Increased vaccination has really helped to minimize the impact of the virus. However, the war in Ukraine has triggered higher food and energy prices, which have hammered households’ disposable incomes. Rising inflation and depreciating currencies have given birth to a vicious cycle that could very well dismantle the fragile recovery that economies were witnessing in the post-COVID world. Fears about the state of the world economy have started jolting financial markets big way. Central banks are rapidly raising interest rates to tame inflation. Recent lockdowns in China are disrupting the supply chains.
India, as an agricultural economy, is a net food exporter but depends on significant agricultural imports such as palm oil. The biggest upside risks to inflation and growth come from the runaway fuel and vegetable oil prices. To control food inflation, the government has recently banned the export of wheat from the country. Unlike few countries, the covid situation in India seems to be under control for the moment and life is almost back to normal.
Castor Market :
Castor crop as declared by Agriwatch in SEA global Castor conference held during Feb 2022 was 1.795 mmt. The weather during plant growth from Nov 2021 to Feb 2022 was favorable. Two spells of rains during early 2022 coupled with cold weather helped good plant growth at the initial stage. First few pickings of harvest were very good. However, the weather turned exceptionally hot during March which started impacting the later part of harvest. Agriwatch has revised the crop estimate to 1.745 mmt based on their survey in March. The latest round of surveys by Agriwatch in April/May further resulted in a drop in crop number to 1.694 mmt which is majorly due to a drop in yield because of abrupt weather patterns.
However, most trade participants in India estimate the crop size to be around 1.5 to 1.6 mmt. With a carry-in of around 0.2 mmt, the total availability appears to be 1.7-1.8 mmt, according to them.
The overall consumption of castor oil during 2021 was around 900kt (1.95 mmt equivalent seed) which included approximately 700kt of castor oil exports and around 200kt consumed locally. Uncertainty coupled with higher prices has resulted in an overall lower demand during Jan-Apr 2022 as compared to the similar period of the previous year.
Total Castor oil exports from India during Jan-Apr 2022 is reported to be 195kt as against 238kt during the same period last year, showing a decrease of 18%. The major decrease in export is to China. They imported 97kt during Jan-Apr 2022 versus 128kt during the similar period of the previous year showing a sharp decrease of 24% whereas remaining all other countries imported 98kt versus 110kt showing a decrease of around 11%.
During the early part of this year, most trade participants preferred to keep their inventory level lower than normal. Everyone including traders, processors, exporters, importers, and consumers preferred to wait for the prices to move lower during peak arrival season of Mar-May when they might get a chance to normalize their inventory levels. The lower opening stocks during 2022 of 200kt (as against 400 kt during 2021) was not enough to cater to consumption requirements during Q1 2022 which resulted in a steady increase in prices. The prices continued to remain firmer even during peak arrival season as the pipeline was dry. Expecting a tightness during the later part of 2022, the traders got active during April and started buying a major chunk of seeds from the market which did not allow the prices to drop. Despite continuous seed arrivals of average 150k bags as against daily crushing requirements of less than 100k bags, the prices are remaining firmer during peak season. The seed arrivals have already started declining and reached to 100k bags per day.
Despite increased prices, the demand has improved recently, and we may see higher export numbers during May/Jun 2022.
The price trend in the coming months would depend on the selling behavior of farmers and the demand pattern at increased prices. The price of castor seeds is very high in absolute term as compared to past years. However, it is not so high as compared to other competing commodities as prices of other commodities have also increased exponentially.
Under current situations, the year of 2022 seems to be tightly matched in terms of supply and demand. Any change in either of them may have a bigger impact on the price trends. We need to keep in mind that demand during Q1 2023 also need to be catered from current crop.
The Supply and Demand factors contribute only partly to the price discovery. We need to closely watch other factors like Covid-19 trend, global economic trends, and prices of other commodities including that of crude & vegetable oil which plays a vital role in the price evolution of castor.
The last but very critical factor is going to be the upcoming monsoon pattern. As we have seen last year, the monsoon during Jun/Jul remained good which resulted in part sowing of castor. August happens to be the highest sowing month for castor. As there was very little rain in August, most trade participants started feeling that the overall sowing number during 2021 may be much lower than the previous year. However excessive good rains during September/October resulted in increased sowing and the overall sowing area during 2021 was 811k Hectares, almost similar to the previous year.
As per the latest IMD forecast, the monsoon in India is expected to be normal this year and the southwest monsoon is likely to arrive a week early this year. We need to keep a close watch on weather patter as any disruption would have a larger impact on upcoming crops.
It’s a VUCA world and the only certain factor currently is uncertainty, and we must learn to live with it. Wish you all and your dear ones a happy and healthy time ahead. Please stay safe.
Shailesh Baldha, General Manager, Adani Wilmar Limited