Castor seed set for a fresh rally

A bullish pattern on the chart could help push the price higher



Castor seed prices have recovered sharply since September, thanks to strong industrial demand for castor oil during the festival season as people start painting and renovating their homes.

Castor seed futures traded on the National Commodity and Derivatives Exchange (NCDEX) have risen about 24 per cent from their September low of ₹3,910 per quintal to ₹4,861 per quintal.

Supply scenario

After a record harvest of 22.95 lakh tonnes in 2011-12, India’s castor seed production dropped in the next two years, eating into the piled-up inventories of previous years. The castor seed production fell to 19.64 lakh tonnes in 2012-13 and then to 16.89 lakh tonnes the next year.

However, for the current year, the Agriculture Ministry projects a 16 per cent rise in castor seed production due to an increase in the sowing area.

The area of castor crop sown as of October 9 is 0.52 per cent higher from last year.

India is the world’s largest exporter of castor oil. In 2013-14, India exported 4.7 lakh tonnes of castor oil, up by 9.6 per cent as compared to the 4.3 lakh tonnes exported in the previous year.

In the first six months until September of the current financial year, exports stood at 2.4 lakh tonnes.

Technical outlook

Medium-term view: For the NCDEX-castor seed futures contract, medium-term prospects are bullish. After a sharp fall from the December 2013 high of ₹5,054 a quintal, the contract has formed an inverted head and shoulder pattern all through 2014 until now. The rally in the past two weeks has signalled a bullish breakout of this pattern. The neckline support is at ₹4,585. Declines to this support can attract fresh buying interest in the market. Also, the movement of the 21- and 55-day moving averages on the weekly chart suggests that the contract could gain momentum and rise further. These two moving averages are currently poised at ₹4,305 and ₹4,196, respectively. Some resistance is at ₹4,890. A strong break above this level can take the contract higher in the medium term to ₹5,350 — the target level of the inverted head and shoulder pattern.

Traders with a medium-term perspective can go long in this contract at current levels. Stop-loss can be placed at ₹4,550 for the target of ₹5,200. Intermediate declines to the neckline support of ₹4,585, if seen, can be considered as a good opportunity to accumulate more long positions. The outlook for the contract will turn negative only if it records a decisive close below the 21-week moving average support level. Such a break can drag the contract lower to ₹4,000 levels.

Short-term view: This is also bullish for the NCDEX-castor seed futures contract. Immediate support is at ₹4,585.

As long as the contract trades above this level, an immediate rise to ₹4,890 looks likely. This level of ₹4,890 is a key short-term resistance level. The contract will need a strong breach of this level in order to extend its uptrend. A break above this hurdle can take the contract further higher to the next targets of ₹5,000 and ₹5,200. On the other hand, if the contract fails to surpass the resistance at ₹4,890, it can reverse lower to test the support at ₹4,585.

The short-term outlook will turn bearish if the contract declines below this support level. In such a scenario, the contract can fall to ₹4,300 thereafter.

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