Commodity Call. Mustard to splutter on output drop

Mustard seed (rapeseed) prices are under pressure because of decline in demand from crushers. The mustard seed futures contract traded on the NCDEX has declined 6.4 per cent from its high of ₹3,614 per quintal recorded on April 28 to now.

From here, however, the price fall should be limited as production in 2013-14 season has declined.

According to data from the US Department of Agriculture, the global production of mustard seed in 2014-15 is expected to drop by 3.4 per cent to 68.64 million tonnes from 71 million tonnes a year ago.

On the domestic front, data from the Solvent Extractors’ Association of India shows that the sowing area under mustard seed has increased to 71.38 lakh hectare for the 2013-14 crop year (October to September), up 5.8 per cent from the previous year.

However, the third advance production estimate from the Department of Agriculture reveals that in 2013-14, mustard seed production would drop to 78.29 lakh tonnes, down by 2.5 per cent compared with the year earlier.

The unseasonal rainfall and hailstorm earlier this year could be a reason for a lower production estimate.

Given that India is expected to get below-normal monsoon this year and the expectation of El Nino setting in, plantings of mustard which begins in November as part of rabi farming operations could be affected. As such, a drawdown in production could limit the price fall in this commodity and could cause a reversal in the coming days.

Long-term outlook : The NCDEX mustard seed future contract (₹3,381 per quintal) is in a strong downtrend since September 2012.

But this downtrend is nearing a very crucial and a long-term trend line support at ₹3,270 per quintal. The 55-month moving average support level is also poised near the same place at ₹3,286. So, a break below the ₹3,286-3,270 support zone might not be very easy for the contract. As such, technically, the downtrend since 2012 could be coming to an end.

A reversal from ₹3,270 can take the contract higher to ₹3,800 initially. A breach of ₹3,800 will then open door for the next target of ₹4,000 and ₹4,200.

As mentioned above declines below ₹3,270 looks less probable now. However, if it so happens, then the contract can extend its down trend towards ₹3,150 and ₹3,000.

Medium-term : The trend is down. The contract has strong resistance at ₹3,650.

The outlook will remain bearish as long as the contract trades below this resistance level. Also, the inability to break the intermediate resistance at ₹3,500 over the last few weeks keeps the contract pressured.

As such, a fall to ₹3,300 and ₹3,270 looks likely in the medium-term time frame.

The presence of a long-term support at ₹3,270 could limit the fall to this level. A reversal from this support can take the contract higher again to ₹3,650. For the outlook to turn bullish, the contract will have to breach ₹3,650 decisively. Such a break can take the contract higher to ₹3,750.

Short-term : The NCDEX mustard seed contract is consolidating in a sideways range between ₹3,380 and ₹3,650 in the short term.

The contract is now poised at the lower end of this range.

A bounce from ₹3,380 can take the contract higher to ₹3,650. This will keep the sideways consolidation intact and the contract can continue to trade sideways for some more time.

A breakout on either side of ₹3,380 and ₹3,650 will then determine the ensuing trend. A break below ₹3,380 can take the contract lower to ₹3,280.

On the other hand, a bullish breakout above ₹3,650 can take the contract higher to ₹3,700 and ₹3,750 in the short term.

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