Low stock, delayed arrivals to lift chilli spot prices

Low stock, delayed arrivals, and buoyant domestic as well as overseas demand are likely to lift spot prices of red chilli to Rs 8,000 per 100 kg in 10-15 days, dealers said today.

Today, chilli prices in Guntur, Andhra Pradesh, the main centre for the spice in India, were quoted at Rs 6,400-7,400 per 1 kg, depending on the quality, up Rs 40 from Tuesday's close.

The December contract on National Commodity and Derivatives Exchange has risen 33.3 per cent in last one month, taking cues from spot market.

At 2:30PM, December contract was at Rs 6,770 per 100 kg, up 3.04 per cent from Tuesday's close. "Stocks in warehouses have almost got depleted, while the demand is extremely buoyant. The market is in the hands of sellers now," said Vinaykanth of Guntur-based Vinay Spices.

According to traders, total stock in warehouses in Andhra Pradesh, the largest producer, is around 700,000-800,000 bags (1 bag=40-45 kg). Average sales per day are in the range of 10,000-15,000 bags, they said. Total stock of the 'Teja' variety, which is most popular overseas, is less than 100,000 bags, keeping prices firm, they said.

"Since fresh arrivals are likely to hit the market only by February, prices are likely to be firm until then," Vinaykanth said. Erratic rainfall in July-August delayed sowing, while floods in November led to a marginal damage to the crop, to the extent of around 10-15 per cent, postponing the arrivals by a month, dealers said.

Normally, new crop arrivals begin by January. In 2006-07 (July-Jan), chilli acreage in Andhra Pradesh is seen up 35-40 per cent at 50,000 hectares due to higher returns, compared with the year-ago period.

Total chilli output in 2005-06 stood at 4-4.5 million bags (1 bag=40-45 kg), traders said. Chilli prices have appreciated sharply in spot market, driven by strong demand from Bangladesh.

Prices could zoom to Rs 8,000 if there is one more vigorous round of buying by traders in Bangladesh in just another 10-15 days," said Dugarchand Kanunga, proprietor of Guntur-based Saurav Enterprises.

"The demand from them (Bangladesh) is strong as the country is not just buying for itself, but also for export purposes," said Shiv Kameshwar Rao, analyst, Religare Commodities.Apart from export demand, good demand from domestic spice processors is keeping prices firm, traders said.

"There is good demand from north-eastern sates. Also, the crop from Karnataka is reported to be lower and it may not be sufficient to meet the demand. Hence, prices in Guntur will rise," said Kanunga. Despite the strong fundamentals in spot market, traders and analysts are not optimistic of the price trend in futures market.

"I have a slight bearish outlook on December contract on NCDEX. Spot prices in Guntur are more attractive than futures and hence, traders will not be tempted to take any fresh long position in coming days but instead be forced to go short," said Rao.

A trader can make more profit by buying and selling in spot market than in futures exchange, he said. On an average, a trader in spot market can make a profit of Rs 25,000 per 5 tonne if he buys chilli at Rs 7,500 per 100 kg and sells at Rs 8,000.