Castor oil prices came under some pressure shortly after our last report in mid May falling from around USD 990/MT FOB to USD 960/MT FOB by the start of June. There was however a slow upward trend to prices in the second half of June and this accelerated as we entered July when prices hit a high of USD 1,010/MT FOB, the first time prices had moved above the psychological USD 1,000/MT FOB mark since early May.
Markets did dip back below this level shortly after this however have since rallied again to their highest level since January of USD 1,045/MT FOB on strong local demand from exporters.
In late May this year Nielsen released the fifth and final amendment to their crop estimate for 2016, a small upward revision from 1,400,000 MT to 1,422,000 MT seed. This understandably had little effect on prices with this minor change in estimate and also a comfortable surplus expected this year. Following the last revision to crop predictions by Nielsen the focus of the market has turned to the onset of the Southwest Monsoon in recent weeks. This will be a significant factor in determining not only yields for next year’s crop but also acreage as farmers can decide to switch to more profitable but less drought resistant crops if rains are plentiful and vice versa. Indeed heavy rains have been seen in recent days and this has led to the usual talk of farmers switching from Castor to more profitable crops such as Groundnut, even though overall rainfall here is deficient at present.
In June 52,000 MT of oil was exported from India, up 11% on June last year and bringing cumulative exports for the first half of this year to 273,000 MT. If looking over the longer term since 2000, the cumulative exports for the first half of 2016 are 55% higher than this average which illustrates the extent to which exports have risen in recent years. If exports were to continue at current levels we could see the total exceed their previous record set back in 2013 when they hit 500,000 MT for the year. One interesting development so far this year is the reduction in oil moving in bulk to storage locations in the Far East and Europe. The vast majority of oil being imported to China now is in flexitanks and Europe has only seen 43,000 MT of oil imported in bulk against total imports of around 164,000 MT.
Futures markets currently show no signs of reopening following their suspension on 27th January and there has been little forward guidance on this offered by the authorities in India other than that they are working on guidelines for a new contract before reintroduction. At the time of suspension there was around 150,000 MT of seed in NCDEX warehouses but this had declined to only around 6,000 MT by the time of our last report and by early July no stocks remained. This means that seed now available in the market comes mainly from market yards and has to an extent kept a lid on speculation.
Looking ahead the main factors which are likely to affect Castor pricing in the next few weeks are the performance of the monsoon and its effect on planting intentions of farmers, as well as any movements in the Rupee. We have seen prices rise since the end of June as bag arrivals have decreased and this could limit any significant downside back to levels seen earlier in the year. Our advice then would be to cover any nearby requirements and consider more long term coverage on any dips in prices seen in the coming weeks, particularly considering that current levels are still extremely attractive when compared with recent years.