Huge stock to push prices of edible oils

An oversupply has begun to build up in edible oils that is likely to outpace the festival demand. Hence, the prices of oils as well as seeds are likely to remain low, according to traders and analysts.

Huge stocks of mustard are lying with National Agricultural Marketing Co-operative Federation of India (Nafed), overshadowing a supply crunch in the short term.

This has led to backwardation in the NCDEX futures, i.e. the trading price in December is lower than that in the preceding months of November, October and September.

Such a situation occurs when the market sees a short-term supply crunch but does not see much demand coming in the long term, said a Jaipur-based trader.

While, traditionally, the supply is lower in the August-September period, this is not the case this year. This year, following a huge stock, supply may outpace demand and price gains may remain lower, analysts said.

Jaipur spot price and NCDEX futures are currently at the Rs 353-356 per 20 kg level.

Market players also believe prices will soften as and when Nafed begins to sell mustard in a larger way. Further, the huge stock of imported edible oils is opening and creating a glut. Nafed's sale of mustard is picking up via small daily tenders, the federation's managing director Alok Ranjan told Business Standard.

"Our weekly tenders have failed to get the desired response, but the daily sales in small quantum are showing good results now. In the last week itself, we have sold around 10,000 tonne."

Nafed has sold around 30,000 tonne via the daily bids since July 15 (when Nafed gave its nod to this sale mechanism) at around Rs 1,700 per 100 kg. There is no minimum quantum for these bids.

"With 10,000 tonne sold in just one week, we foresee demand to pick up further, especially from the eastern parts of the country. The festival season of Ramadan, Dusshehra, Durga Puja and Diwali is yet to begin," said Ranjan.

Mustard oil is a class by itself and cannot be diluted. Also, it is used by masses for its colour and pungency and is not replaceable by any other edible oil, he added.

Nafed has cancelled all its weekly tenders (seven consecutive ones as it did not get good bids). The federation had procured mustard under the price support scheme at the minimum support price of Rs 1,700 per 100 kg, and after carrying cost assessed at 10 per cent, the cost price of it was as high as Rs 1,870 per 100 kg.Traders, however, beg to differ.

"The sale of just 30,000 tonne when it is sitting on a huge stock of over 20 lakh tonne does not make much difference to trade. Price will go down as and when market arrivals rise," said another Jaipur-based trader.

He added Nafed is seeking a price that is too high. It has led most processing mills to close down and pushed business towards other oils. Further, mustard oil may just lose its market to cheaper imported oils.

Edible oils:The edible oil market is witnessing a liquidity crunch following negative margins. The huge stocks of imports have reduced the demand for forward booking also. Following lower international prices, India's imports have been good. In 2004-05 oil year (October-September), imports are likely to touch 5.2 lakh tonnes as against 4.4 lakh tonnes last year.

"Currently, it is seemingly a hand-to-mouth situation. Cheaper imports are coming in, and at times they are being sold in market at prices below parity also," said Rajini Panicker, commodities head of Refco Commodities.