A Record Rate For Soyabeans In The Global Market Is Likely To Prompt - July 4, 2008

Chennai: A record rate for soyabeans in the global market is likely to prompt farmers to plant more of the oilseeds this year.

There is an aim among farmers to grow more soyabean this year. But rains in the next couple of weeks hold the key to any increase in area, said Soyabean Processors Association of India (Sopa). In Asian trade on July 3, soyabean July contract was cited at a record $16.51 a bushel ($750 a tonne). Soyabean rates have been increasing since last week on worries that the US weather may not be conducive for the crop's growth.

Last year, soyabean output in the country was a record 95 lakh tonnes against 71.5 lakh tonnes the previous year. The production was up on increased acreage of 88.5 lakh hectares and good monsoon.

Gold Likely To Make Further Gains In The Short-Term

Chennai: Gold prices crossed the psychological buoyant mark of $1,000-an-ounce last week, both in spot and futures. While the futures have closed just below the $1,000-mark, spot gold has ended at $1,002.32.

Silver continues to rule firm, but hasn’t really steamed ahead like gold. This, analysts say, is one reason for investors to look for further gains in both gold and silver, at least in the short term.

General consensus

Definitely, the US recession seems to be the main driver. And there is a general consensus that gold will support the later stages of recession, especially when interest rates are cut.

Also, the economy, the US in particular, is under severe stress due to the credit markets squeeze. This is seen leading to the economic stress and, therefore, gold is seen as the best hedge against both the recession and currency weakness.

More speculators

Investors and speculators, in particular, are investing in gold just because it is the only one remaining firm. The more the investors buy gold, the more speculators are in the market. This is seen as a positive factor that could drive gold further higher to even $1,100 in the near term.

In fact, a school of thought feels the gold market can easily handle $3,000-5,000, given the current economic conditions. The latest Commitment of Traders data show that large speculators hold 49 per cent of the open positions, followed by commercial hedgers at 21 per cent.

This year, gold’s return has been positive at nearly 20 per cent, while something like the Standard and Poor Index has declined by 12 per cent. If one were to go by comments in the market, then gold’s best is yet to come.

Actually, market pundits relate the current action in the market to what happened during 1979-80, when gold prices trebled within a matter of few weeks. Data show that the number of long speculators are the highest-ever in the gold market at over three-lakh contracts.

The open positions in the market are four times the normal. This is one of the reasons why the short-term outlook is seen positive for gold.

A couple of other factors driving gold prices are investments by institutional investors and supply crisis due to power woes in South Africa. In fact, South African gold production declined in February due to power problems.

The next trigger point for gold is the Fed rate cut that is expected on March 18.

This could buoy gold further, unless until the Fed thinks enough is enough with rate cuts, which is beginning to trigger inflation.

Strong support

According to Angel Research, spot gold will meet with stiff resistance at $1,050 levels while it is seen well supported at $960 levels. MCX April gold support is seen at Rs 12,500 and resistance at Rs 13,120 per 10 gram.

Silver has not run up as gold and, therefore, it could be its turn to rise next. That is seen as one which could help gold to move further. Spot silver, according to Angel, will find strong support at $19.70 levels, while resistance is seen at $21.20 levels. MCX May Silver support stands at Rs 25,950 & resistance at Rs 26,970 per kg.

Crude could show signs of easing as economic indicators aren’t good for it and, therefore, metals could see some pressure.

UP Cane Price Issue: HC Order Likely Next Week

Chennai: The Allahabad High Court has listed for next week its order on a petition filed against the State advised price (SAP) for sugarcane fixed for by the Uttar Pradesh Government for the 2007-08 season beginning October.

The court also did not stay its interim order, asking sugar mills in the State to pay the statutory minimum price (SMP) fixed by the Centre for procurement of sugarcane from farmers.

“The court did not stay the interim order of January 17 and, therefore, the order of mills having to pay the SMP of Rs 80 a quintal remains in force,” said Ravindra Singh, the counsel for the UP Co-operati Cane Unions Federation. The federation is seeking vacation of the interim order and payment of SAP as announced by the Mayawati Government on October 30 for the current season.

On October 30, the Uttar Pradesh Government said SAP for 2007-08 would be the same as during 2006-07. While sugar mills will have to pay Rs 125 a quintal for common variety sugarcane, Rs 130 for early variety and Rs 122.50 per quintal for rejected variety to the growers.

“The January 17 order of the High Court was reiterated on February 20,” Singh said. The Allahabad High Court had on March 4 reserved its order on the petition filed by Bajaj Hindusthan Ltd and Basti Sugar Mills against the SAP.

Pending PILS

The case is attracting attention of all those concerned with the sugar industry, especially after the Supreme Court passed an interim order on February 27 asking the mills to pay growers Rs 118 a quintal for normal sugarcane variety. However, this order pertains to the 2006-07 season.

For the 2006-07 season, the Lucknow Bench of the Allahabad High Court on November 15 asked the mills to pay farmers Rs 110 a quintal for the sugarcane they deliver. At least half a dozen public interest litigations have been filed against this order and these pleas are pending before the Supreme Court. The apex court has listed these petitions for hearing during the last week of March.

But it has refused to pass any interim order, wanting the High Court pass the final order.

The Supreme Court interim order on February 27 came following an appeal against the December 19 Allabahad High Court order, quashing the SAP for 2006-07 and asking the Uttar Pradesh Government to revise it.

This implied that it would be enough for the sugar mills to pay the statutory minimum price fixed by the Centre at Rs 80 a quintal. Earlier on January 17, the Supreme Court had stayed the High Court order.

The Allahabad High Court on Thursday also listed for March 26 a hearing on a petition challenging the privatisation of the Majola Cooperative Sugar Mill in Philbhit district of Uttar Pradesh.

Gold Price Poised To Top $1,000

Chennai: Gold continued its glittering run last week, gaining 3 per cent and towards the weekend, it was almost in a galloping mood. Helping gold were factors such as the four-month high inflation witnessed by the US, fall of the dollar and fears that inflation may rise further.

Overall, the yellow metal has gained 16 per cent since the beginning of this year and along with it, silver has also had a good run. It ended near $20-an-ounce mark during the weekend.

Impending crisis

Analysts are unanimous in their view that gold is gravitating towards $1,000 and it may happen this month.

What has happened with last week’s upward momentum is that gold has now found a firm support between $953 and $961, after having closed at $974.50 for April delivery.

It has been reiterated time and again that the US economy, the interest rate cuts announced by the Fed besides pumping of currencies were all pointers to an impending crisis and therefore, gold was firmly headed towards $1,000. And going by the panic that gripped the US stock markets, there should be no surprise if that event takes place this week.

According to Anuj Goel, analyst with Kotak Commodity Services Ltd, the yellow metal is headed for $1,025-1,030 range. His view is that raging crude and the euro-dollar equation could take gold to further highs. But there is a word of caution in that the dollar-yen has broken the crucial support of 104.

Back home, the waiver of farmers’ bank loans and raising of the income tax limit, which could see extra money in the hands of the households, are factors that can trigger demand for the yellow metal, besides, of course, white goods.

Gold appetite is never satiated in India, where the precious metal is valued the most. But the moot point is how many would have the courage to buy at prices of over Rs 12,500 for 10 gram. Still, with the marriage season ahead and a couple of festivals coming up, there could be some purchases.

With returns from gold being much higher than those from stock markets, that should see interest in its investment also. Therein, lies a reason for some more demand, not to forget the upcoming harvest season. The bottomline is that gold will continue to retain its sheen.

For those interested in technicals, gold will face resistance near $981 and then after $1,000. Supports for it are first at $954 and then at $939.

Silver will follow gold and it could also top $20 this week. Resistance is seen at $20.10, support at $19.33 after it closed at $19.875 during the weekend.

Crude, which has also had a run to a record $103 a barrel last week, could see some cool-off effect but March, analysts say, is always a time when it historically rises. Coal is likely to rule firm, while metals could witness profit-taking.

Excise Duty On Sugar Raised By Rs 9 A Quintal

Chennai: The Centre has increased the excise duty on sugar by Rs 9 a quintal. The levy will come into effect from March 1 and has nothing to do with the Budget being presented in Parliament on Friday. Budget 2008-09

“The additional duty will now make the total excise levy on sugar at Rs 95 a quintal and together with the special educational cess of three per cent, the burden will be Rs 97.85 a quintal for the sugar mills,” trade sources said.

Actually, the Centre had initially pegged the excise duty at Rs 71 a quintal. Then, following the setting up of the Sugar Development Fund (SDF), it imposed an additional Rs 14 a quintal, thus making it Rs 85. Last month, the levy was further increased by Re 1 a quintal.

Sugar Development Fund

“This levy is not related to the Budget as it is meant for the Sugar Development Fund being managed by Food and Consumer Affairs Ministry. Though the Central Excise authorities collect the levy, part of the collections go into SDF, which is exclusively meant for the industry’s benefit,” the sources said.

SDF is used for extending loans to mills for co-generation power projects, anhydrous alcohol and defraying expenses on internal transport and freight charges. It is also used for maintaining sugar buffer stocks.

Consumers, however, are expected to be unaffected by this additional duty on sugar. “It is demand and supply that dictate price in the sugar market and, therefore, this levy will not cast any burden on the consumer,” the sources said. “Basically, the duty is intended to help the industry,” they said.

With quite a few obligations being met out of SDF, the latest hike is expected to meet the increasing expenditure from the fund.

Interest subvention

This hike, it is learnt, is particularly to meet part of the interest subvention or Government’s financial aid for the mills the Food Ministry has to bear towards payment of cane arrears. In October last, the Government had approved bank loans to the mills, equivalent to the actual excise duty paid by them during 2006-07 and the estimated amount payable in the current year. The interest on these loans with a tenor of five years with a two-year repayment moratorium was supposed to be borne by the Centre.

However, the Finance Ministry came forward to offer only interest subvention of 12 per cent. Of this, five per cent was to be borne by the Finance Ministry and the rest by the Food Ministry. Money for the Food Ministry for meeting this obligation had naturally to come from SDF.

It is learnt that the amount of money available in the SDF has become a cause for concern and, therefore, the Food Ministry decided to impose the additional levy.

According to the trade sources, the increase in the duty was very much on cards after an agreement was worked out on loans for the mills to pay cane arrears.

(As per the Economy Survey tabled in Parliament on Thursday, cane arrears as percentage of the price have increased to 6.2 per cent and outstanding dues have been estimated at Rs 1,830 crore.)

It is felt that the Centre could have avoided such a steep hike at one go and it could have been made in phases.

Growers Hold Back Stocks As Rubber Prices Zoom

Chennai: Prices of natural rubber, which topped Rs 100 a kg this week and were quoted at Rs 101 on Thursday, have witnessed a sudden rise during the last 10 days. And despite higher prices, buyers are not able to find stocks. Run-up to Budget 2008-09

“No one knows what is happening in the rubber market. Looks like it is being driven by speculation rather than any physical transaction,” said Prof K.K. Abraham, President of the Pala Marketing Cooperative Society.

Prices for RSS-4 (ribbed smoked sheet) had been ruling steady at Rs 94 a kg until the beginning of last week before the current bull run began. “The rates had been consistent around Rs 94 in the last two months. There is no rhyme or reason for the sudden rise in the last few days,” said Radhakrishnan of the Cochin Rubber Merchants Association.

Analysts, however, attribute the sudden rise to two factors. One, the rise in prices of crude oil, which touched a record $101.10 a barrel on Wednesday. Two, early wintering of trees, when the leaves are shed, in Thailand, the top rubber producer of the world. Crude oil derivatives are used in production of synthetic rubber, which is an alternative to natural rubber and wintering means trees cannot be tapped.

‘Alarm bells’

The rise in prices has left the user industry such as the tyre manufacturers worried. “Rubber price having crossed the Rs 100 a kg mark this week rings alarm bells for the tyre industry. An increase of Rs 5-6 a kg within a week has placed tremendous cost push pressure on the tyre industry,” said Dr R.P. Singhania, Chairman of the Automotive Tyre Manufacturers’ Association. According to the association, an increase of Rs 5 a kg in rubber price translates into an input cost increase of over Rs 100 for each truck and bus tyre.

What is more worrying is that the increase comes during the peak production period and when stocks are projected at around two lakh tonnes. “We are surprised with the sudden rise as it is a peak production period now,” Dr Singhania said.

“Stocks at the end of January were estimated at 2.20 lakh tonnes. February production is projected at 55,000 tonnes and domestic consumption at 75,000 tonnes. About 12,000 tonnes are being exported but imports are also taking place. But taking everything into consideration, there should be a carryover stock of 1.8-1.9 lakh tonnes by the end of March,” said Mr Radhakrishnan. “But we don’t find the stocks in the market,” said officials of the All-India Rubber Industries Association during a press briefing in Chennai.

“Maybe, growers could be holding stocks,” said Prof Abraham.

“Growers have been receiving fantastic prices during the last couple of years. Even small growers have been getting a good price and this has given them the capacity to hold on to their stocks. They are holding back quite a lot,” said Radhakrishnan.

Tapping

“The good prices are also seeing growers continue tapping now, which is unusual. Usually, tapping is stopped around February second week and is resumed by March-end or early April. The good prices are encouraging them to continue tapping,” Radhakrishnan said.

Though this year, production is seen lower at around 8.39 lakh tonnes against a consumption of 8.59 lakh tonnes. The stocks that can last for over two months are seen as a factor that can keep a leash on the prices. That, however, is not happening as growers, in expectation of good prices, are not bringing their produce to the market. Besides, nearly 75,000 tonnes of rubber have been imported, while exports are likely to be around 45,000 tonnes.

Industry and trade sources also blame the rise in prices to speculation. “This trend will have an adverse effect on the industry, especially tyre sector,” Dr Singhania said.

Despite Last Week’s Fall, Gold May Hold Firm

Chennai: Last week, gold declined 1.87 per cent to $906.10 an ounce. The yellow metal came under pressure especially during the weekend on fears of US recession slowing demand. The fears led to panic sales but the sellers’ fears could have been misplaced. Run-up to Budget 2008-09

Demand could slow down quite a few things but will gold be affected? That is a key question and there are a few factors to ponder over. On the other hand, we have to keep in mind that inflation in the US is turning out to be real. The US Fed Commission is talking of cutting interest rates further but such a monetary policy is not seen as a panacea by economists to save Washington.

Gold may have come off from a record high of $942.20 a ounce seen on January 30 but we have to bear in mind what happened earlier when gold touched $900. Then, it slid only to bounce back stronger. No one can rule out that happening, though currently it is seen gathering strength sideways before making its move upwards.

India factor

Newer theories are emerging on why gold is seen holding stronger. Not the least is the Indian factor. India’s rabi or winter crop harvest is round the corner during which marriages also take place. Farm products in India are currently on an upswing and most of the crops’ prices are much above the minimum support price announced by the Government.

And sugar is seen bullish again. Besides, the Commission for Agricultural Costs and Prices has recommended remunerative prices for farmers and among various crops, the minimum hike it has recommended is 20 per cent.

All this means more money in the hands of the farmers and gold is the first thing that will strike them for investment. Therefore, gold purchase in India could resume with the wedding season round the corner. No Indian marriage is complete without gold and that should prove a trigger point for the yellow metal’s move in the next couple of weeks. Globally, there are two other factors that can hold gold firm. One is the low interest rates for loans and the other inflation.

At three per cent, loans are cheap and the best possibility, according to analyst Bill Bonner, for speculators is to buy gold.

Better asset

According to another analyst, Krassimir Petrov, inflation doesn’t erode the value assets and gold is seen as a better asset than real estate.

Let’s look like this. Not all investors can invest huge amounts required to buy a real estate asset, whereas gold can be bought in small lots! There then, is the promise of gold.

Keep Veg Oil Customs Duty Unchanged

Chennai: The Central Organisation for Oil Industry and Trade (COOIT) has urged the Union Finance Ministry to keep the customs duty on import of vegetable oils unchanged in order to help increase oilseeds production in the country.

In a memorandum to the Union Finance Minister, P. Chidambaram, the COOIT Chairman, Davish Jain, said the duty on crude palm oil and de-gummed soyabean oil was very low, taking into account the freeze in tariff values since September 2006.

In view of the freeze in tariff values the effective duty, going by current prices of crude palm oil and de-gummed soyabean oil, was 18.67 per cent and 16.81 per cent against the set duty of 46.35 per cent and 40 per cent respectively.

Price advantage negated

“With such low effective duties, any further reduction will only discourage farmers from growing oilseeds. The lower duties have also tempted foreign edible oil suppliers to go on jacking up the prices, thereby negating price advantage to Indian consumers,” he said. Run-up to Budget 2008-09

“The increase in edible oil prices is similar to or less than the increase in other essential food items. Also, the share of edible oils in the daily budget of a family is much lower than wheat, rice etc. The current prices of edible oils are realistic and as a direct outcome of this, the farmers have been realising remunerative prices for their produce. It is necessary to keep the prices at the current realistic level, so that oilseeds production which has been stagnant over the last 10 years gets a boost and our over-dependence on imports of edible oils is contained,” he added.

Additional Release Of Sugar To Keep Prices On Leash

Chennai: The Centre’s move to release additional sugar under the free sale quota for February and March is likely to keep physical prices of the sweetener under control.

“For instance, 16 lakh tonnes of sugar will be available for sale through the open market during March. This is like sugar being made available during Diwali. Such huge quantity will give no chance for prices to increase,” said Praful Vithlani of Jagjivandas Keshavji and Co, a sugar brokerage firm.

Initial release

The Centre initially released 13 lakh tonnes (lt) each for January and February and 15 lt for March. Apart from this, two lt were to be available each month for sale through the public distribution system or ration shops from January to March.

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However, towards the middle of January, it released an additional one lt for that month and it was to be lifted from the factories by January 31. On January 31, it released an additional one lt for February through free sale before allocating another one lt for March.

Govt norms

As per the Government norms, the Centre decides on the quantity of sugar that can be sold in the open market and through ration shops. The allocation is made month-wise in an effort to ensure that the market does not crash due to oversupply. At the same time, any shortage, especially during festival periods, is also overcome through additional allocation.

Carryover

“What has happened is that only 12 lt of the 14 lt allocated for January has been lifted. That two lt have been carried over to this month,” Vithlani said.

Of the two lt that was not lifted, one lt was in Tamil Nadu, 60,000 tonnes in Maharashtra and 40,000 tonnes in other parts of the country.

“Along with the carryover, 16 lt of sugar are available for sale this month. We expect only 14 lt to sell, and again there could be a carryover of two lt. This will mean 18 lt will be available for sale in the open market in March,” he said. With such a trend, chances of prices gaining are bleak, according to Vithlani.

Drop in output

The Centre, too, is keen on ensuring that sugar prices do not flare up. Sugar prices have begun to move since the beginning of this year on reports of a lower than expected sugar production. The output, which was initially expected to top 300 lt, is now projected at a little over 270 lt. The Union Agriculture and Food Minister, Sharad Pawar, last week said the production was expected to be around 260 lt. Production is expected to drop further to 250 lt next sugar year starting October. Last year, production was 283 lt.

Current quotes

Medium or M-30 sugar on Tuesday was quoted at Rs 1,490 a quintal against Rs 1,446 on November 1 last. The price had increased to Rs 1,513 on January 25 before finding moving down. Small or S-30 sugar was quoted at Rs 1,430 against Rs 1,450 on January 25 and Rs 1,365 on November 1 last.

On MCX, small sugar closed at Rs 1,368 a quintal for March delivery and Rs 1,346 for delivery this month. On NCDEX, March contract was quoted at Rs 1,454 and that of Febuary at Rs 1,414. Quotes on both the exchanges were down compared with Monday.

High Premium For Washed Robustas Draws Buyers’ Ire

Chennai: Five years ago, using robusta coffee in the Italian Xpresso coffee was unthinkable. Today, Indian washed robustas are being used instead of arabicas in Xpresso coffee. As a result, they began to command a premium in the global market up to nearly $500 a tonne.

With robusta prices in London ruling at over $2,100 a tonne, sellers of Indian washed robustas are demanding a premium of $800. Things, however, have run into rough weather with buyers resisting the high premium and even threatening to replace the washed robustas with arabicas from South America.

“Buyers are threatening to stop procuring our washed robustas since they think we are seeking a higher premium. It has to an extent affected exports in January of the grade, also known as robusta parchment,” said Ramesh Rajah, President of the Coffee Exporters Association.

Though provisional coffee exports figure shows a rise in January shipments to 14,172 tonnes from 14,122 tonnes a year ago, robusta parchment sales abroad are down more than 50 per cent at 226 tonnes against 561 tonnes.

Artificial boost

According to the Coffee Board, robusta parchment AB enjoys a premium of $530 over robusta coffee traded in London.

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Coffee industry sources said the premium had been artificially raised, though supply of the grade was tight in the global market, mainly from India and Vietnam.

“Buyers are not ready to give such a high premium for the washed robustas. But the problem is they can’t change the blend of the coffee with our produce overnight from 100 to zero. It will happen slowly and they will keep reducing,” Rajah said.

Exuding confidence

According to plantation sources, it will be difficult to replace washed robustas in Xpresso. “Roasters and buyers will have to accept that high or low prices are part of our business. No one can match our quality in the robusta sector,” they said.

“It is wishful thinking on the part of some roasters that they can replace our washed robustas with mild arabicas from South America, especially Colombia,” the sources said.

The confidence of the plantation sources stems from the fact that coffee exports to Italy, seen as market for quality coffee, have increased significantly in the recent years and Indian coffees have penetrated deeply in that market mainly on marketing efforts.

Note of caution

According to the Coffee Board, exports to Italy have increased from 41,842 tonnes during 2001-02 to 62,807 tonnes (provisional) during 2006-07. In terms of the share of total coffee exports from the country, it has increased from 19.59 per cent to 26.50 per cent in 2005-06 before slipping a tad to 25.32 per cent last fiscal.

But a section of the industry feels, the buyers’ threat could be for real. “Today, washed arabicas are being blended in Trieste, Italy and Hamburg, Germany. Technology is available in these places to replace our washed robustas with other grades of coffee. It is possible with technology to match the Indian flavour,” they caution.

Initially, Indian robustas had commanded very high premium but it had declined gradually with Vietnam making rapid strides in robusta production. The South-East nation now tops in global robusta production.

Currently, farm-gate prices of robusta parchment are about Rs 500 a bag (of 50 kg) lower than arabica parchment at Rs 4,150-4,200. In London, on Monday, robusta was quoted at $2,146 with fund buying propping up the beverage to its highest since November.

Gold May Seek Further Highs On Investor Interest

Chennai: Last week, gold saw its roller-coaster ride, which we have been witnessing since the beginning of the year, take it to a new peak of $923.40 a troy ounce. The yellow metal was spurred by a power shortage in South African mines, including some of the world’s biggest. Power shortage affected production for at least two days in succession.

What next for gold? Certainly $1,000 an ounce is not far away and there are valid reasons for gold to top that level. Primary, of course, is the shape of things in the US. The Fed may have come up with an interest rate cut and could be up with another in the next few weeks, but things aren’t as the Fed Chairman, Ben Bernanke, would like us to believe.

According to Antal E. Fekete of Gold Standard University Live, the US is on its way to financial annihilation.

“Confidence in the system is gone, and banks no longer trust other banks. Irredeemable promises can only be redeemed by issuing more irredeemable promises. In such a system, the erosion of confidence cannot be checked. Investors must salvage their capital from the moribund international monetary system and invest in gold,” he says.

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Investing in gold helps transfer one’s capital to safety. The value of gold is more stable than the value of any non-monetary commodity, according to Fekete.

As we have pointed out in these columns before, investors, particularly abroad, would be trying to seek physical gold and try to convert their paper values into gold. This is because the dollar is under pressure, though the US currency is putting up resistance now and then supported by the bond market.

Profit-taking

If the gold market witnessed a fall earlier this month, it could be attributed to profit-taking and even sale by some central banks. But analysts feel once that gets over, gold is headed only one way, up. In fact, the rebound has seen it only seek higher levels as it was witnessed last week.

Gold, according to Fekete, isn’t moving on supply-demand fundamentals and speculators in the market aren’t interest in it either.

Profit-taking could rear its head in the gold market now and then; but it is certain to dry and lead gold to further highs. What will be its peak or when will the bull run is anybody’s guess.

Analysts feel that once profit-taking slows or dies down, gold could witness backwardation wherein spot prices will be higher than futures. That could also end contango or the situation where forward prices of long term futures are higher nearer ones.

Buying strategy

The strategy, therefore, for investors in bullion could be to buy at every dips. Silver, too, is set to keep following gold and a school of analysts even feels that silver could turn out to be a more profitable investment this year than the yellow metal.

On the other hand, worry of recession in the US is all set to keep the base metals choppy. But the problems caused by rains in South Australia, where a couple of coal mines have declared force majeure, should see coal prices rising in the short term.