The price of chana has been falling for almost two years now since late 2012. In fact, the price has been below the minimum support price (MSP) since November last year. MSP is the floor price for the commodity fixed by the Government in order to arrest any freefall in the commodity price and protect farmers.

The chana futures contract traded on the NCDEX are down over 45 per cent from their October 2012 peak of ₹4,999 per quintal to ₹2,755 per quintal now.

Why the fall?

After a strong 14.7 per cent (8.8 million tonnes) jump in production in 2012-13, chana production is estimated to have hit a record 9.9 million tonnes in 2013-14; 12 per cent increase. One reason for the record increase in chana production year after year was the higher MSP announced by the Government. The MSP was raised from ₹2,100 per quintal in 2011-12 to ₹2,800 in 2012-13.

This increased farmers’ interest in the crop. They planted chana as the second crop (Rabi crop) between October and March after harvesting soyabean in the Kharif season.

In 2013-14, the MSP was increased again to ₹3,000/quintal and now it is at ₹3,100.

Signs of reversal

Chana prices may, however, start to rise now. Since price has been ruling below MSP for a long time, farmers may likely ignore the crop this year, resulting in drop in production. The Ministry of Agriculture’s production data also suggests the same. Chana production for 2014-15 is expected to drop by about 5.9 per cent to 9.3 million tonnes, according to the first production estimate. This is positive for prices.

Technical outlook

Medium-term : The NCDEX chana (₹2,755) futures contract has been in a strong downtrend since October 2012. The contract bottomed at ₹2,528 per quintal in August 2013 and reversed higher. However, it failed to breach ₹3,400 decisively and has dropped sharply once again after recording a high of ₹3,416 in March 2014. Though the long-term downtrend is still in place, it could be coming to an end. There is a strong long-term trend line support coming up at ₹2,575. A break below this level might not be very easy. Also, there is another key support at ₹2,400 and so the downside looks limited for the contract from current levels, indicating high probability of upward reversal in the coming months.

The 21-month moving average at ₹3,070 is a key resistance for the contract. A strong break above this level can take it to ₹3,500. Traders with a medium-term perspective can start buying at current levels. If the contract declines to test the support at ₹2,575, it can be an opportunity to accumulate more long positions. Stop-loss can be kept at ₹2,350 for the target of ₹3,450.

Short-term : After a sharp 22 per cent fall from the March high of ₹3,416, the NCDEX-chana futures contract has been consolidating sideways between ₹2,650 and ₹3,000 since June. It is currently moving lower from ₹2,984 and is poised near the midpoint of the ₹2,650-₹3,000 consolidation range.

The probability is high now for it to move lower towards ₹2,650 in the coming weeks. A reversal from there will keep the sideways consolidation intact and can take the contract higher to ₹3,000 once again. A strong break above ₹3,000 can take it higher to ₹3,150. On the other hand, a fall below ₹2,650 can take it lower to ₹2,500.

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