Chana market crashes

Chana spot market crashed in the last few days due to weak market sentiments caused by the imposition of stock holding limit on Chana. Similarly, the futures prices too nosedived after the exchanges were asked by the Forward Markets Commission (FMC) to impose a special margin of 10% on long side of all running contracts of chana from 30th September 2011.

Earlier, limited stocks available in the market and disappointing first advance estimates of pulses production by the agriculture ministry encouraged traders to take huge long positions in the futures market. Chana prices in the spot market increased by almost Rs.500 a quintal in the September month to touch a high of Rs.3700 a quintal (Source: NCDEX September spot price). Weak supply in major chana producing states amid strong demand ahead of festivals supported prices at higher levels. Prices of pulses across the board remained steady on account of rising demand in the domestic market and slow arrivals from farmers and traders to the wholesale markets.

As per the first advance estimates of production released by the Ministry of Agriculture, chana production (Kharif) is estimated at 6.43 million tonnes against 7.12 million tonnes in 2010-11, a decline of almost 10 per cent. Production of tur (pigeon peas/arhar) is projected to be at last year’s level of around 2.9 million tonnes, while urad (black gram) and moong (green grams) would see a shortfall in production.

According to the weather watch report from the Ministry of Agriculture, the total sowing acreage of kharif pulses as on 30th September 2011 stood at 110.14 lakh hectares as against 121 lakh hectares that were reported last year in the same period. This was mainly on account of shift in crop area of pulses towards oilseeds and cotton in major producing states such as Maharashtra and Andhra Pradesh.

Globally production of chana is likely to decline by almost 6% in 2011 due to poor crop harvesting expected in Australia and Canada. The Australian Pulses Traders Association has mentioned that he total production of Australia’s desi chickpeas is likely to decline by almost 10-12% to 3.05 lakh tonnes despite strong sowing acreage of almost 5.02 lakh hectares reported in 2011. This will be on account of poor productivity of chickpeas crop.

Similarly in Canada, Agriculture and Agri - Food of Canada has mentioned in its latest report that in 2011-12, pulses area is forecast to fall by 48% from 2010-11. This is much lower than originally intended because of excessive moisture in many growing areas. Production is expected to fall sharply to 65,000 tonnes, the lowest since 2004-05. Supply is forecast to be lower than last year and is expected to limit exports by 90% to 50,000 tonnes in the international market.
All the above mentioned factors had been supporting chana prices at higher levels. However, in the last two-three days, china prices in the spot as well as futures crashed as the commodity exchanges imposed a 10% long margin on chana contracts.

Government’s announcement to have a contingency plan for additional production of pulses in Rabi 2011-12 to overcome losses of Kharif pulses also supported the bearish market sentiments. Alleged rumors of government taking an extreme step to control rising prices of essential commodities (read inflation) by banning trading in futures (or some commodities) also created a fear in the market. Hence, market participants in the futures market started liquidating their positions to cover their losses (or book profits) to maintain the margin limit on the exchange.

The government of Rajasthan too, acted by imposing a stock limit on chana separately from the other pulses. Henceforth, total pulses stock limits shall be 550 tonnes instead of 500 tonnes for wholesalers (per license). For chana, the stock limit has been fixed at 250 tonnes and for other pulses it is 300 tonnes.

The Central Government has set a target for itself to achieve an additional production of 2.78 million tonnes pulses during the ensuing Rabi season through area expansion and productivity enhancement.

Disclaimer:The views expressed are my personal and all the information contained herein is based upon information available in the public domain.