Market Strategy

Cardamom is a spicy bet

Gurumurthy K. | Updated on January 18, 2014 Published on January 18, 2014

The probability of a reversal from Rs 550 is high.



The domestic market for cardamom, the queen of spices, has been under pressure over the last few years due to higher production. India, which is second in production, accounts for over 20 per cent of the global production.

During the current season to July, production is estimated at over 20,000 tonnes against last year’s production of around 13,000 tonnes. Production has been hitting record highs in the last couple of years.

On the quality front, Indian cardamom is considered the best among its global peers. Cardamom is largely consumed in West Asian countries. Combined with India, they account for about 60-65 per cent of total global consumption.

Indian scenario

India is the second largest exporter of cardamom, next to Guatemala. The exports are quite sensitive to the price movements. When the price crashed from a high of about Rs 2,000 in 2010 to about Rs 600 in 2012, exports fell 15 per cent.

On the other hand, a sharp reversal in cardamom prices from 2012 helped exports revive 157 per cent in that period. But shipments dropped again by 28 per cent last year due to a price fall. Now, the commodity price is hovering near the same level as it was in 2012. If the price recovers from here, it would help Indian exports pick up.

The weak rupee could also help in such a scenario.

TECHNICAL OUTLOOK

Long-term view: The MCX cardamom futures contract has been in a long-term downtrend since touching its all-time high of Rs 2,097/kg in June 2010. The price has crashed 66 per cent since then. However, this downtrend is now at a critical support level.

A significant long-term trend-line support is at Rs 550. This support was defended successfully twice last year, in July and December. The probability of a reversal from this level is high. While the contract trades above Rs 550, a rally to test the resistance at Rs 1,050 looks likely in the coming months.

A strong break above this resistance will confirm the trend reversal. Target on a breach of Rs 1,050 will be Rs 1,500. Conversely, if the contract declines below the crucial support level of Rs 550, it can fall to Rs 250.

Medium-term view: The medium-term trend is down. This downtrend seems to have lost momentum and has been forming a base near Rs 600 over the last few months.

A sharp bounce from here can take the price to Rs 1,050, a key medium-term resistance for the MCX cardamom futures contract. An upward breach will see the price moving towards the next target of Rs 1,350 over the medium term. Inability to break above the resistance at Rs 1,050 could keep the contract in a sideways range between Rs 600 and Rs 1,050 over the medium term. Key medium-term support is at Rs 600.

A break below this support will result in the downtrend continuing towards the next support at Rs 550.

Short-term view: The MCX cardamom futures contract has moved in a sideways range between Rs 600 and Rs 800 over the last few months. A breakout on either side of Rs 600-800 will decide the short-term trend. Bullish signals are emerging from the price action in the last few weeks. The contract is getting continuous support from the 21-day moving average support, currently at Rs 695.7 over the last few weeks.

Also, the contract is on the verge to rise past the 200-day moving average at Rs 721.3. As long as the contract trades above the 21-day moving average, the probability of the contract witnessing a bullish break above Rs 800 in the coming days, is high. The target above Rs 800 will be Rs 950.

The downside pressure will build up only if the contract declines below the 21-day moving average support. This will result in the contract moving down towards Rs 600, the lower end of the range.

>gurumurthy.k@thehindu.co.in

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