Chana prices to remain high

Higher imports and lower level buying from stockists will support prices

Chana prices have been rising sharply in the last six months. The price of the chana futures contract traded on the National Commodity and Derivatives Exchange (NCDEX) has shot up about 30 per cent from ₹2,770 in September to the current levels of ₹3,600. Ankita Parekh, Research Analyst, Nirmal Bang Commodities says the price rally has been fuelled by, “One, fear of a lower supply after government estimates of a fall in production for the year and the other, increase in bargain buying from stockists”.

Chana production is estimated to be lower this year due to drop in area sown under the crop. According to the data from Agriwatch, only 85.91 lakh hectare has been covered under chana as of mid-February this year as against 102.25 lakh hectare covered over the same period last year. This is almost a 16 per cent drop in sowing. So, production is estimated to stand at 7.9 million tonnes this year as against the 9.1 million tonnes produced last year.

But, to start with, why has the sowing come down this year?

Poor returns from the chana crop as the prices traded below the minimum support price (MSP) in 2013-14 dissuaded farmers from sowing chana, says Ankita Parekh.

Record production of over 9 million tonnes of chana drove market prices below the MSP last year.

Unseasonal rain impact

There has been talk of the un-seasonal rains in the last few months having damaged crops. But chana crops are not much affected so far; the little damage whatever has been because of the hail storm witnessed in the month of February and March. Ram Gopal Yadav, Senior Research Analyst, Agriwatch says, “The unseasonal rainfall is going to affect only the quality of chana and not the quantity”. But, Ankita Parekh adds, “If the rains and hailstorm persist in April, then it will be a problem as yields will be hit”.

Arrivals pressure

The rally in chana prices might pause for some time as the peak arrival season begins in April. The supply is expected to increase in this season to 40,000 to 45,000 tonnes as against the normal 20,000 tonnes according to Ankita Parekh. Supply will remain higher for the next couple of months and it is expected to put pressure on the price. Having said this, further rise in chana prices from current levels is less likely. However, the downside in price from here is also expected to be limited as lower prices would again attract fresh buying interest from the stockists.

Import impact

India depends on imports to meet the domestic demand. The chana imports averages between 0.2-0.3 million tonnes per year. As the peak arrival season ends in May, the dependency on imports will be more in June/July. Prena Sharma, Research Analyst, Emkay Global Financial Services says, “The inventories has come down sharply to 6 lakh tonnes from about 18-20 lakh tonnes in January. At this rate the inventory will run-off in a couple of months and turn the attention towards imports”.

As imports become inevitable, the value of rupee is also going play a significant role in the domestic chana price. So a weak rupee in the coming days could also be one factor that will push the chana prices higher in the coming months.

Technical Outlook

Short-term view

The rally that had begun in the NCDEX-Chana futures contract in October is facing resistance near ₹3,750 levels now. There is a strong a key trendline resistance at this level. The 50 per cent Fibonacci retracement resistance is placed at ₹3,763. The contract had tested these levels a few times in the last couple of months, but failed to breach the hurdle. The inability to breach ₹3,750 has increased the chances of a short-term corrective fall. Immediate resistance is at ₹3,650. A fall to ₹3,400 looks likely now. However the downside is expected to be limited. The presence of a trendline as well as the 200-week moving average, both at the same level of ₹3,400 makes it a strong support. Having said this, a break and further fall below ₹3,400 is unlikely.

Medium-term view

As mentioned above ₹3,400 is a strong support that can limit the downside for the contract. Also there is another key medium-term support at ₹3,340. There is a strong likelihood of the price to reverse higher again from these levels in the coming weeks. Such a reversal will have the potential to take the contract higher to ₹3,800 initially. A strong break above ₹3,800 will open doors for the contract to move to the next target of ₹4,000.

Traders with a medium-term perspective can go long at current levels. Stop-loss can be placed at ₹3,280 for the target of ₹3,950. Short-term declines to ₹3,400 can be considered to accumulate long position.

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