Commodity Trends: Agri commodities turn bearish

India surpassed China as the world's biggest buyer of palm oil as rising incomes increased demand for fried and processed foods and drought reduced domestic cooking oil production. The country imported 7 million tonnes in 2009, more than China, data from the Mumbai-based Solvent Extractors' Association of India shows.

A two-day international seminar on wheat and wheat products will be held at Ahmedabad from February 19, with the theme 'towards millennium development goals'. Prof K.V. Thomas, Minister of State in the Ministry of Agriculture and Food, will deliver the valedictory address, organisers said.

Gold Gold futures started the week at Rs 16911/10 grams, initially surged to 17014 levels on weakness in US dollar. Later, gold prices slumped sharply in middle of the past week, taking cues from the movement in the dollar, though managing to recover slightly towards the end of the week. Gold prices are expected to improve in coming days on expectations of further weakness in the dollar. It is the dollar factor that is primarily determining bullion prices. Officials of the Federal Reserve Bank stated last Thursday that lending rates in the US may remain low for as long as two years.

The Federal Reserve has kept its target rate at zero percent to 0.25% since December 2008 to revive the economy. On the back of expectations of a lower interest rate in the US, the dollar is expected to weaken further. Weakness in the dollar will help gold prices as a weaker dollar will make the yellow metal look attractive for holders of other currencies. In 2009, the rise in gold prices was mainly backed by the weakness in the dollar. Gold prices could continue to witness an uptrend in prices and the bullish phase in the yellow metal could continue. MCX Feb Gold shall find a strong support at 16630/16425 levels and resistance at 17100/17250 levels for the coming week.

Copper Copper prices moved southwards on concern that a slowdown in Chinese bank lending could dampen growth in the world's third-biggest economy. But a weaker dollar could help to cushion prices on the international front. The People's Bank of China will increase the proportion of deposits the country's lenders must set aside as reserves in an effort to rein in growth. China's economy is overheating as asset bubbles and inflation pressures build. China is the driver of base metals demand and slowing growth in China could lead to concerns for base metals. We expect prices to face downside pressure on the back of this data. MCX Feb Copper shall find a strong support at 333/326 levels and resistance at 350/358 levels for the coming week.

Crude Oil Crude Oil prices fell sharply in the last week as a rise in oil inventories, milder winter in the US and CFTC regulations also added selling pressure in the commodities. Oil prices started witnessing downside pressure after supplies increased in the last week. Distillate fuel stockpiles rose for the first week in five last week. Heating oil and diesel stockpiles increased 1.35 million barrels to 160.4 million, 18% above the five-year average. Crude oil stockpiles climbed a second week, adding 3.7 million barrels or 1.1% to 331 million.

The Commodity Futures Trading Commission (CFTC) proposed limits on energy speculation that may curtail the investment of large banks. Speculators in the futures market will no longer be lumped in with commodity-linked businesses that are allowed to exceed limits on the number of energy futures one trader can hold. Crude oil prices may trade with a negative bias as downside pressure will remain on signs that economic recovery may falter.

An increase in US jobless claims and weaker retail sales has dented confidence in the strength of the economic recovery. Oil prices could also trade lower as risk aversion in the financial markets could lead to lower demand for higher-yielding and riskier investment assets. MCX March Crude Oil Contract shall find a strong support at 3600/3530 levels and resistance at 3810/3930 levels for the coming week.

Soybean Soybean (NCDEX February contract) futures opened week at Rs 2314 a quintal and fell sharply from there and touched a low of 2210 levels owing to weak overseas market and poor export demand of domestic soy meal. However, it recovered slightly at the end of week on short covering and managed to close at Rs 2235 a quintal with a loss of Rs 75 a quintal as compared to previous week. Higher production estimates of Global oilseeds for 2009-10 may provide support to bears in the market. The Solvent Extractors' Association of India compiled the data for export of oil meals for the month of December 2009 was at 3.96 lakh tons as compared to 7.09 lakh tons during December 2008 i.e. down by 44%.

The overall export during April to December 2009 is down by 44% due to weak export demand coupled with lower crushing and disparity. Higher stock of imported edible oils and lower demand at retail ends also added bearish market sentiments. As per USDA's Monthly Report, U.S. oilseed production for 2009/10 is estimated at 99.0 million tons, up 1.1 million from last month. Soybean production is estimated at a record 3.361 billion bushels, up 42 million bushels from last month based on higher yields. The soybean yield is estimated at a record 44.0 bushels/ acre from 43.3 bushels/acre. Global oilseed production for 2009/10 is projected at 431.6 million tons, up 3.0 million from last month. Global soybean production is projected at a record 253.4 million tons, up 3.1 million. Brazil's soybean production is projected at a record 65 million tons, up 2 million tonnes from last month. In the coming week, prices are expected to move southwards on account of above mentioned fundamentals. NCDEX February Contract shall find a strong support at 2200/2150 levels and resistance at 2315/2375 levels for the coming week.

Jeera Jeera production for the crop year 2009-2010 is expected to be around 1,26,000 (23 lakh bags ) tonnes as compared to 1,37,500 (25 lakh bags )tonnes in the year 2008-09. Jeera carryover stocks at present are around 22000 tonnes as compared to 66,000 tonnes in the same period previous year (2008-09). Slight showers in the month of December 2009 proved beneficial for the crop sown in the month of October 2009 resulting in expected higher yield of Jeera in the year 2009-2010. Prices are thus witnessing a downward move. Demand from overseas and domestic buyers of Jeera continues to remain subdued.

Jeera prices in the international market of the major origins are almost at the same levels of $2800/tonne. In the short term (till January 2010) prices may be determined by the demand from the overseas and domestic market, weather in the Jeera growing areas and Jeera prices of the major origins especially India, Syria and Turkey in the international market.

Any vagaries in the weather would adversely impact the production of Jeera. This may be supportive for the Jeera prices. Prices in the medium to long term (February onwards) may be determined by the arrivals in the domestic market, sowing pattern in Syria and Turkey, demand from the overseas and domestic market. NCDEX February Contract shall find a strong support at 12400/12000 levels and resistance at 13600/13850 levels for the coming week.

Rubber Rubber prices have remained steady last week even as efforts are on by major rubber producers to release more supplies to bring down the heat on prices. The producers are reportedly planning to hold prices at a reasonable level of $2.56 a kg. Top producer Thailand may take the first step and release at least 300,000 tonnes of rubber held in reserves to moderate prices,

India's rubber production has dipped marginally by 2 per cent to 98,000 tonnes in December against 1.00225 lakh tonnes last year. However, with industrial recovery firmly under way, rubber consumption remains robust, growing 17 per cent to 79,500 tonnes. With severe slippage in Malaysia's rubber production, India is set to become the third largest producer of natural rubber this year.

Last week Tocom futures for June delivery slipped to 290.4 yen after rising to 301.2 on news that China raised bank reserve requirements to curb credit boom and prevent economy from overheating. This also impacted the metals and energy sectors. However, the lower rubber production and rise in automobile sales in emerging nations are providing firm support to rubber prices. India's benchmark NMCE rubber futures traded in narrow range so did the spot markets. NMCE January futures fell from Rs 143.95 to Rs 142 while February futures which rose to Rs 146 in the beginning of the week slidback to Rs 143.89. Spot rubber ruled steady at 139 to 140 levels. The higher prices of rubber have forced All India Rubber Industries Association (AIRIA) to urge the government to allow two lakh tonnes of duty-free import of rubber.

Chana Chana futures continues to trade weak after reaching record highs in November as rising acreage, ample carry-forward stocks are limiting any upward movement for the cheaper pulses variety. The benchmark NCDEX February contract has fallen 16% since it hit a high of 2896 on November 6. India's chana acreage has risen to 86.03 lakh ha as on January 14, 2009 as against 81.66 lakh ha during the corresponding period last year. Rains in Maharashtra, Karnataka and Andhra have proved bearish for China. On some days, the NCDEX contracts gained marginally on bargain buying at lower levels but the overall sentiment was bearish as fundamentals are not supportive.

On Monday, the January contract close at Rs 2345 a quintal while February contract closed at Rs 2431 but towards weekend the corresponding prices were Rs 2339 and Rs 2440. Rabi pulses acreage has shown an increase of seven lakh hectares this year at 134.77 lakh ha, Ministry of Agriculture data showed. The supportive factors for chana are firm kharif pulses and bargain buying possibilities at lower levels. The coming weak, Chana is expected to trade weak with NCDEX January contract support seen at Rs 2300,Rs 2320 resistance at Rs 2380, 2400 levels. NCDEX February contract has support at Rs 2400 levels.

Pepper Pepper futures and spot markets is further falling into a bearish trap as new arrivals and weak demand in overseas, domestic markets are affecting investor sentiments. The Benchmark NCDEX Februrary pepper futures hit a contract low of Rs 13310 on Wednesday before climbing back to Rs 13474 on Friday. Pepper output is expected to be steady in 2010 compared to last year, but lower carry-over stocks could limit downside fall on prices. India exports of pepper have fallen to 1500 tonnes due to uncompetitive prices of Indian parity which ruled at Rs $3400 per ton as against lower levels quoted by Vietnam and Brazil. News of 7000 tonnes of pepper exports from Vietnam in December have also impacted bearish sentiments in the market. Depreciating dollar has also hurt spices exports from the country in recent weeks. With Vietnam crop expected in March-April, pepper is set for a weak trend in the coming weeks. However, analysts don't expect a drastic fall on low carry-over stock. NCDEX Jan futures has support at 13100 levels while February has support at 13200 levels.

Wheat The cereal has gone bearish globally on increased production hopes and consequent fall in export demand for USA, the world's largest shipper of wheat. World stockpiles will rise 19 percent to 195.6 million metric tons, the highest since 2002, the U.S. Department of Agriculture said. Production may total 676.1 million tons, second-most only to last year's record of 682.7 million tons, the USDA said.

In India, wheat futures at NCDEX is trading in a narrow range. On Monday it closed at Rs 14144 and fell to Rs 1438 on Friday. The supportive factor for wheat is the fall in acreage reported last week. According to Agriculture Ministry, wheat acreage as on January 7.2010 is 26.85 lakh ha as against 27.25 lakh ha in the corresponding period last year. Wheat futures for March delivery fell 17.75 cents, or 3.4 percent, to $5.10 a bushel on the Chicago Board of Trade. The price fell more than 10 percent this week, the most since Dec. 5, 2008. (Compiled with analytical support from Angel Commodities, Mu,mbai)