Pulses prices are due for correction

Pulses prices are due for correction

Supportive government regulations coupled with festive season demand helped pulses experience a sharp price uptick in the later part of 2020. As a result, the WPI pulses inflation data remained in the higher bracket shooting to its highest level in October (15.93 per cent). The major pulse categories such as Chana (gram/chickpea), Tur (pigeon pea) and Masoor (lentils) made price gains in the range of 15 per cent – 25 per cent between September and October last year.

A noticeable hike in minimum support price (MSP), free distribution of chana to the poor households, rigorous purchases by government’s procurement agency NAFED during prolonged lockdown, import duty of 200% on peas, unexpected flood and a shift towards vegetarian protein during corona, mainly accounted for the price surge. However, prices started moderating since mid-December on expectations of better output. With arrivals of fresh season crops nearing and expectation of increased supplies than the previous season subject to congenial climatic conditions, the upside in the prices of pulses seems over.

Adequate Supply

The new normal range for the pulses output has gone up to 22-25 million metric tons (MMT) from 16-19 MMT since 2016-17. Along with increasing consumer preference for protein food, the factors which have incentivised production have been substantial hikes in floor prices of pulses and increased government procurement in the last five years.

India produced 1/4th of the global pulses output amounting to 23.15 MMT in 2019/20 as per the fourth advanced estimates. Favourable weather evident from the better sowing reports, raised the production outlook for 2020/21 crops. The acreage under chana is up by 4.19 per cent, and that under lentils up by 2.67 per cent till 22 January,2021. Absence of any weather extremities (rains and hailstorms) in the next two months may help produce 8.5 MMT of chana and 1.6 MMT of lentils in 2020/21 compared to 7.6 MMT and 1.1 MMT respectively in 2019/20. Chana constitutes 45 per cent of India’s pulses production.

Chana prices rallied in 2020 due to additional demand, 80 crore individuals received 1 kg free chana from April to November under Pradhan Mantri Garib Kalyan Anna Yojana. This helped clear the previous year’s carryover stocks and the market supply of chana squeezed. With the onset of festive demand starting from August, low supply fueled the prices. However, that scenario looks unlikely in 2021 due to expectation of better output and normal demand that may end the year 2020/21 with a carryover stock of more than 2 MMT. Besides, this year is shaping up good for Australia with the country likely to harvest 750,000 tons of chana in 2021, 180 per cent higher than a year before.

Hikes in support prices of lentils from INR4800/Q to INR5100/Q for 2020-21 has been the major factor behind improved sowing in the key producing states. Further, India is expected to import 6 lakh tons of lentils by December 2020 before import duty is revised back to 30 per cent from 10 per cent.

Tur, a kharif pulse crop sharing 20 per cent output in India’s pulses basket has fetched INR8800/Q in 2020, 55% higher year on year is facing a month late arrival for 2020/21. Karnataka crops have started coming in December and Maharashtra’s harvest started reaching the markets only in January. So, the recent requirements of Tur have been met mainly through imports. The government has extended its pact with Mozambique to import 200,000 tons of Tur for another five years. Tur production for 2020/21 is 4.82 million tonne, 26 per cent up from 2019/20. Arrival pressure may correct the prices further. However, downside in Tur seems limited and may give decent returns to investors if bought on dip because the commodity has already been down by 30 per cent-50 per cent from last year’s levels and the new season crop arrivals started with firm price levels. A procurement support from NAFED and aggressive buying by Dal mills in future will limit the extent of downside in Tur.

Outlook

To sum up, pulses counter in general seems headed for correction.

With good crop conditions, approaching arrival season and reduced demand, Chana prices are likely to be under pressure as contrast to the rallies seen in 2020. Chana prices are currently trading in the range of INR4500-4800/Q compared to its MSP of INR5100/Q for 2020/21.

Lentils prices are expected to trade with bearish tone on account of high output expectations, increased imports and relatively weak demand. However, the downside in prices seems limited below INR4800/Q (currently trading around INR5000-5200/Q).

A correction offers buying opportunity in Tur and downside in Tur seems unlikely to sustain below INR5000/Q. Prices are already trading in the range of INR5300-5700/Q, much below their MSP of INR6000/Q (2020/21).

The writer is co-founder, director and head of agriculture, food, and retail at Indonomics Consulting. The views are personal.

This article is auto-generated by Algorithm Source: www.thehindubusinessline.com

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