Cardamom will retain its flavour

Strong export demand likely to limit downside and push prices higher



Cardamom prices have risen sharply this year due to a pick-up in export and domestic demand. The cardamom futures contract traded on the Multi Commodity Exchange (MCX) has surged about 64.6 per cent from its low of ₹571 per kg in December 2013 to ₹940. It peaked to ₹1,129.9 in May.

Cardamom prices in India fell for more than a year since August 2012 before bottoming out in December 2013. Excess supply and fall in export demand dragged down prices. Data from Spices Board India shows that cardamom exports fell by 36 per cent in 2012-13. This saw the MCX cardamom futures contract tumble nearly 63 per cent from its high of ₹1,508 in July 2012 to a low of ₹560 in July 2013. However, exports picked up thereafter, increasing by 13 per cent during April-December 2013 from a year ago. This arrested the price fall and cardamom futures consolidated sideways in a broad range of ₹550 and ₹900 during this period.

Tight supplies

Cardamom supply in the domestic market might remain tight until September, when there is a second round of plucking. In the first round, between May and July, the delay in monsoon affected harvest. There is no threat for domestic prices until October, when Guatemala, the world’s largest cardamom producer, announces its current year production estimates. With several provinces in Guatemala facing drought conditions, traders are keeping fingers crossed. Depending on whether the data is strong or weak, domestic cardamom prices could sway accordingly.

So, domestic prices may remain high for longer. Demand from exporters and domestic mandi traders is strong and supplies are tight.

Technical outlook

The medium-term outlook for the MCX-cardamom futures contract is bullish. After a sharp fall from the 2012 high of ₹1,508, the contract had consolidated in a broad ₹560-900 band for a prolonged period from May 2013 to February 2014. This suggests the formation of a strong base. Technically, this would be a strong base as the consolidation has happened around an important long-term trend line support level at ₹600.

Key medium-term support for the contract is at ₹800. There is no hurdle to the bullish outlook as long as the contract trades above this level. Some resistance is seen at ₹1,050. A strong break above this can take the contract to ₹1,300.

Traders with a medium-term perspective can go long in the contract now. Stop-loss can be kept at ₹750 for the target of ₹1,200. The outlook for the MCX-cardamom futures contract will turn bearish only on a strong decline below ₹800. The ensuing target on such a fall will be ₹600.

Short-term view

The contract has been consolidating in a sideways range of ₹910 and ₹1,030 since the last week of July. A breakout on either side of this will decide the next leg of move for the contract. This sideways consolidation is just happening above the 200-week moving average, currently at ₹913. Also, the 38.2 per cent Fibonacci retracement support level is poised nearby at ₹916. These two supports could make it difficult for the contract to break the ₹910-1,030 range on the downside. This implies a high probability for the contract to breach ₹1,030. The short-term target on such a break will be ₹1,150.

The first sign of a bearish outlook would emerge if the contract records a decisive close below its 200-week moving average-level.

In such a scenario, the short-term outlook could turn negative for the target of ₹850 — the 50 per cent Fibonacci retracement support level.

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