Chana sprouts a brighter outlook

Given the current scenario, buying on dips makes investment sense

For most part of 2018, chana (chick pea) has witnessed a bearish tone, staying 10-25 per cent below the Centre’s mandated support price of ₹4,400/quintal. The fall in chana prices happened due to comfortable stocks, continued imports and anticipation of good crops. However, there has been some upturn in chana prices over the past couple of months, with prices trading broadly in the ₹4,200-4,800/quintal range.

This was thanks to limited availability of cheaper imports amid high import tariffs and quotas, festival season, below expectation production and report of reduced sowing in the new season.

Tightening supply

In 2017-18, the crop output was expected to cross a record 11 million tonnes, but the actual output was near 9.4 mt. However, for 2018-19, reports of low sowing and expectation of warmer winter, along with prevailing moisture stress in the soil, raise concerns about the quality of the chana crop.

With sowing entering its last phase in 2018-19, the Centre’s latest sowing report as of November 30 puts chana acreage at 7.05 million hectares, down 15 per cent from last year. After a deficient monsoon, moisture stress level is high, and if that prevails, subject to warmer winter on account of El Nino effect, chana output can decline to below 8.5 mt. That is likely to provide a firm undertone to chana prices.

Lower crop supply from Australia due to reduction in acreage by over 70 per cent in 2018-19 is expected to further aid the positive sentiments.

However, prices may witness a correction if winter rainfall is timely and adequate, leading to increased productivity that will negate the effect of lower acreage.

To prevent the situation of price shocks in pulses, the Centre is focussing on increasing the MSP by a huge margin. Chana’s MSP has been raised by almost 35 per cent in a span of past four years till 2018-19, and the current MSP of ₹4,620/quintal is expected to give a return of 75.2 per cent over investment, assuming an input cost of ₹2,637/quintal, as estimated by the Centre.

A series of hikes in import duties on chana and its cheap substitute, yellow peas, have limited import and shifted some of the additional demand towards domestic chana. In November 2017, the Centre had imposed 50 per cent import tariff and quantitative restriction on annual import of up to 0.1 mt for yellow peas till December 31, 2018. However, the import duty on chana has been increased in phases from nil to 60 per cent now. After facing bad losses in the elections in Madhya Pradesh, Chhattisgarh and Rajasthan, it’s safer to assume that the BJP government will not go for any reduction in import duties before the general election as any duty reduction move will be perceived as anti-farmer.

Despite a firmer tone in the market, any major spike or rally in chana seems unlikely due to fear of release of stocks from the central pool that holds one-fourth of the total crop supply of the year.

Nafed (National Agricultural Cooperative Marketing Federation), on behalf of the Centre, has procured 2.72 mt of chana, and after releasing some stocks from the past, is still left with massive stocks (2.38 mt), which is more than enough to cap any serious jump in prices. Nafed may release two-thirdsof its stockbetween December and February before the new crop hits the market, and this will always cap the gains in prices.

Outlook

The chana market faces volatility because of the Centre’s regular interventions, and variations in climatic conditions. Given the current scenario, buying on dips in chana makes investment sense due to firm signals of tightening crop availability, expectations of improvement in demand and restricted imports. However, a little correction in chana prices can’t be ruled out in the light of huge stocks with the Centre. Any significant correction above ₹150-200 a quintal looks unlikely in the current scenario, but any change in government policies on relaxing imports or return of favourable weather condition can change the scenario.

The writer is director and head of agriculture, food and retail at Indonomics Consulting

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