Traders wary as turmeric spot, futures price gap widens

The sharp rise in turmeric prices on the National Commodity and Derivatives Exchange, even as spot prices in major centres have remained flat has left most physical traders wary of the futures market as they think it is being driven by speculative interests, according to analysts .

Traders and analysts were of the view that the price disconnect is not justified, despite the fall in turmeric production this season.

"It is true that crop may be 15-20 per cent lower than last year, but ample carry forward stock will be sufficient to meet demand. Also, spot traders have already factored in crop shortage to the price," said Satyanarayan Bajaj, head, Rajesh Kumar and Co, Nizamabad.

Traders estimate India's turmeric production in 2007-08 (July-June) at 4.2-4.5 million bags (1 bag=65-75 kg).

Many farmers had shifted to more remunerative crops such as soybean and chilli this season to get higher returns, which led to a decline in output, traders said. Unfavourable weather conditions also contributed to the fall in production, they said.

Total turmeric arrivals in Nizamabad spot market this season are expected to be around 1.2 million bags (1 bag=70 kg), compared with 1.4 million bags a year ago, said Jitendra Nagla, proprietor of Nizamabad-based Neelkanth Corp and Jagnathji Industries.

On Thursday, NCDEX April futures ended at Rs 3,015.

Today, spot price of old NCDEX-quality turmeric was Rs 2717.66, while same quality new crop was Rs 2,500-2,525.

Manmohan Daliya, co-proprietor of Nizamabad-based trading firm Ramkishan Srivallabh, said he is "scared" of the rising disconnect between futures and spot prices as it indicates the rise is masterminded by "sattorias" (speculators), and not by traders.

Most physical traders of the commodity refer to the futures market as "satta", a term that can be loosely translated as gambling or speculative trading.

"Even small factors like minor crop loss or cloudy weather are enough for speculators to drive up prices sharply everyday. It is as if even God is on the bulls' side and it is a sin to be bearish on futures," said Darshan Kataria, head, Manan Corp.

Traders see turmeric futures rising to Rs 3,150-3,200 per 100 kg next week.

Some even see prices touching Rs 3,500 by March-end on speculative buying if arrivals get delayed further.

Some traders are of the view that lack of January, February and March contracts has also left control of futures trade in the hands of a few speculators.

"They should have allowed futures for these months, with delivery of available old NCDEX-quality stock. The gap between December and April has only played into the hands of these speculators," said Gouran Kataria, head Bhanu Traders.