Potato prices to cause more heartburn

Rise in potato prices has been sharpest amongst all commodities across categories during May 2014 on y-o-y basis

Soaring onion prices that upset the domestic budgets became a political hot potato in 2013. It could well be a similar story this year as well, albeit with a different commodity in focus. While the government is doing its bit to keep onion prices in check, prices of potato have seen a steady rise.

The latest Wholesale Price Inflation (WPI) figures released Monday show, while prices of onion dipped 2.83 per cent in May as compared to the corresponding period last year, potato prices have seen a massive rise of 31.44 per cent during the same period. In fact, the rise in potato prices has been the sharpest among all commodities across categories during May on a year–on–year (y-o-y) basis.

In three months, spot prices (Potato Agra) on the Multi Commodity Exchange (MCX) have risen nearly 6.5 per cent toRs 1,244 per quintal, data compiled by the BS Research Bureau suggests.

  Elevated costs for food items, particularly vegetables and fruits have added to inflationary pressures. Higher potato and onion prices pushed up wholesale food inflation to 9.5 per cent last month from 8.64 per cent in April. Led by costlier protein-based items, fuel and some manufactured products the WPI-based inflation surged to a five-month high of 6.01 per cent in May against 5.2 per cent in the previous month.

So, what’s causing the spike in potato prices and going ahead, will it be significant enough to upset your daily budget?

C P Krishnan, wholetime director, Geojit Comtrade, suggests that the rise has been on account of a build up in speculative positions in the futures market due to rising demand. “Another reason has been concerns regarding the monsoons this year – the El Nino condition. There are fears that the potato growing regions like Uttar Pradesh, West Bengal, Bihar, Gujarat, Madhya Pradesh and Punjab could receive less rainfall thereby impacting overall production.”

“Going ahead, the prices are likely to move higher and can touchRs 1,420 levels in the near-term. A breach can take it higher toRs 1,500 levels,” he adds.

Points out a recent report from SMC Global: “Potato future is likely to trade in the range ofRs 1,280 – 1,360. Overall estimate of 25-30 per cent of production loss, higher export demand due to duty removed by Pakistan on Indian potatoes may support the prices. However, government intervention to control food inflation and profit booking at higher level cannot be denied.”

Adds Anuj Gupta, assistant vice-president for technical research at Angel Commodities Broking: “Though prices have did cool off from a peak ofRs 1,500 toRs 1,300, June contract prices are hovering aroundRs 1,388 per quintal. I expect them to rise toRs 1,450 levels in the next one month.”