Chilli seen at Rs 4,000/quintal in February

Spot chilli prices in Guntur, Asia's largest chilli trading centre, are likely to touch Rs 4,000 a quintal by the end of this month because of good export prospects and on unfavourable weather conditions leading to lower-than-earlier estimated crop, Venkata Kilaari Rosaiah, president, Guntur Chilli Merchants Association said on Wednesday.

Rosaiah is also the proprietor of Kilari Koteswara Rao and Co, a red chilli agency and export firm.

Currently, good quality 334 variety is being traded around Rs 35-37 a kg with average daily arrival of around 15,000-20,000 bags (1 bag=40-45 kg), lower than last year's average arrival of 40,000 bags during the same period.

"By February-end, arrivals may climb marginally to 30,000 bags and after March 1, they would rise above 50,000 bags. The delay is due to wet, cold and cloudy conditions that have prevailed over the region for the last few weeks which have drastically hurt harvesting activity and crop yields," Rosaiah said.

Rain and cold weather have delayed maturation of the crop and also drying, which has led to the peak arrival season moving from February to March this year.

According to Rosaiah, acreage in Guntur for chilli has risen around 15 per cent from last year but unfavourable weather will ensure that output will remain capped around 10 million bags.

Due to rise in acreage, market had anticipated an output of 11.5-12.5 million bags this year but wet weather has played spoilsport to expectations of a bumper crop.

"Earlier people had feared the market (price) would slip to Rs 28-30 a kg due to high output but now that fear has diminished," Rosaiah said.

He feels another factor that will support prices is falling stock levels in cold storages, which are being consumed at a faster pace as new arrivals get delayed further.

On January 1, carry-forward stock was estimated around 800,000-1 million bags in Guntur but over the last few weeks it has slipped drastically to just 300,000-400,000 bags, he said.

Reports of pest affecting crop has also helped in boosting the sentiment for chilli, and Rosaiah feels that farmers who had made huge profits on selling their produce above Rs 40 a kg are unlikely to sell below Rs 35 a kg.

"If prices slip below Rs 35, then farmers may prefer to put their stock in cold storages but between Rs 35-40, they are likely to sell their crop," Rosaiah said.

"Availability of chilli from other parts of the country is also low coupled with continued crop issues in major export rival China, which has ensured that domestic and export demand remains strong," he said.

He called weather-related crop loss in China over the last three years a "blessing in disguise" for Indian exporters who have strengthened their standing in the global market.

In 2007-08 (April-March), chilli exports are likely to touch 200,000 tonnes for the first time ever.

Although Rosaiah feels this figure may not be topped in 2008-09, he sees export demand remaining strong.

Over the last two years, Bangladesh has overtaken Sri Lanka, Malaysia, Singapore and the US to constitute nearly 50 per cent of the total export demand.

"Exports to Bangladesh may be hit slightly if reports of good local crop are true and prices may slip by Rs 500 to Rs 3,000 a quintal after April 15. But, the country still has to deal with the cyclone season and so it may be still too early to talk about their crop," Rosaiah said.

Regarding European Union putting more stringent testing norms, he felt it would cut into competitiveness of Indian exporters and most exporters would just not export there on fear their consignments may be destroyed if any contamination is detected.

"Spices Board should strongly protest this move as the Board has already been testing all chilli being exported from the country over the last few years," Rosaiah, a former Spices Board director, said.

"NCDEX (National Commodity and Derivatives Exchange) should look at easing chilli norms slightly to boost trade volume and facilitate higher delivery," he said.

The exchange had tightened chilli norms after a major quality issue in 2006.

"I am not saying bring down quality by 10 per cent, just 2-3 per cent leeway must be given keeping in mind prevailing market conditions and available quality.

Going strictly by the rulebook in such matters is only hurting trade," he said.

Rosaiah also feels that a drastic cut in the chilli position limit is driving away hedgers and genuine traders from futures market.

"For example, in 2006, I had delivered 2,500 tonnes on the exchange but in 2007, I delivered just 50 tonnes due to unreasonably low position limits imposed by Forward Markets Commission," he said.

Rosaiah said chilli February contract could rise to Rs 42-43 a kg before its expiry, but added that nobody will be able to deliver any good quality new crop this month due to prevailing weather issues in Guntur.

"It just won't pass the exchange's quality checks due to high moisture levels," he said.

Rosaiah feels that easing norms in futures slightly could benefit the market substantially, as it gives exporters and domestic players an opportunity to effectively hedge their price risk.