Chana set to rise on demand, low acreage

Chana is expected to witness revival in fortunes in 2008 on cyclical demand surge coupled with lower rabi acreage estimates, experts and analysts said. However, inconsistent government policies may help cap the rise.

Clarity on output would emerge only at the beginning of 2008 when sowing ends, they said.

Most analysts expect chana to trade between Rs 1,800 and Rs 2,400 a quintal. Karvy Comtrade sees the commodity peaking at Rs 2,800 a quintal by the beginning of the fourth quarter next year.

After a dream run that witnessed prices hitting Rs 3,300 a quintal in 2006, the current year spelled doom for the commodity as the prices nosedived to around Rs 1,900 a quintal. The sharp decline happened towards the end of the season when prices normally peak.

"However, due to lower chana prices in the current year, the demand cycle will favour a bull market in the coming year," said Chowda Reddy, research analyst with Karvy Comtrade.

Prices will remain strong even if the government continues with its import policy as prices of yellow peas and chana in Canada and Australia are expected to remain firm, according to recent statements by the grain federations of these countries. India imports both the commodities from these countries.

However, the market is yet to bottom out as one more fall is expected in the next couple of months when arrivals begin, Reddy said.

Although chana sowing is far from over, government data till December 13 reveals the acreage was 7.1 million hectares, down from 7.6 million hectares a year ago.

"Absence of rains in Rajasthan and Madhya Pradesh "" the key chana growing states "" in the next few weeks can further reduce yield due to moisture stress conditions prevailing there," said Ashwini Bansod, research analyst, MF Global Commodities.

Rains in late January and early February are necessary as the crop is in the grain formation stage.

It could result in a fall in output by a little below half a million tonnes in these states, Bansod said.

The overall output can go down to 4.8 million tonnes compared with 5.3-5.5 million tonnes estimated by the industry in the current year.

Output in Maharashtra, Karnataka, and Andhra Pradesh is expected to be good, but the produce from these states may not qualify for delivery on the futures platform, she said.

"Even if output equals last year's figure, increased demand due to lower prices will put chana prices in bullish zone," Reddy said.

Contrary to the overall bullish views, Religare Commodities says chana prices are unlikely to see a substantial upside next year as output is likely to exceed current year's figure by at least 10 per cent on higher yield and late-recovery in sowing. "We expect chana to trade between Rs 1,950 and Rs 2,400 a quintal next year," said Hanish Kumar Sinha, senior research analyst, Religare Commodities.

The acreage may fall in some pockets of the country, but the overall production will top 6 million tonnes as against 5.5 million tonnes this year, as sowing will pick up by the end of this month, Sinha said.

The recent political rift between the Left Front and Congress will compel government to control domestic food prices. This may prompt government to keep its pulses import policy unchanged next year too, Sinha said.

The Centre had announced import of 1.5 million tonnes pulses this financial year to contain domestic prices of pulses.

Physical demand for the commodity is also likely to remain low putting pressure on the prices, Sinha said.

Relisting of tur and urad futures could fuel some bullishness.

"However, this is a distant possibility as reforms may take a back seat in the next year since the country is likely to go to polls," another analyst said.