Commodity Futures:India

Commodity Futures is an agreement to buy or sell a set amount of a commodity at a predetermined price and date Buyers use these to avoid the risks associated with the price fluctuations of the product or raw material, while sellers try to lock in a price for their products. Like in all financial markets, others use such contracts to gamble on price movements. Futures trading performs two important functions of price discovery and price risk management with reference to the given commodity. It is useful to all the segments of the economy. It is useful to the producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities, the best that suits him. Farmers can get assured prices and there is transparency. It is useful for the consumer because he gets an idea of the price at which the commodity would be available at a future point of time. He can do proper costing and also cover his purchases by making forward contracts. Predictable pricing & transparency.

Futures trading is very useful to the exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in quoting a realistic price and thereby secure export contract in a competitive market. The other advantages being Improved Product Quality, Credit Accessibility.

Importance of Commodity Futures Market
Commodities market essentially represents another kind of organised market just like the stock market and the debt market. However, commodities market, because of its unique nature lends to the benefits of a wide spectrum of people like investors, importers, exporters, producers, corporate. Saturation in Financial Markets and the short term investment opportunities with high reward in the Commodity Future Markets offer wide potential for broadening, deepening,widening and strengthening of the commodity markets. The Markets need to tap the immense opportunities made possible by huge population and increasing per capita income.

Commodities Market Structure in India
All the Commodity Exchanges in India operate under FMC and function within the ambit of Forward Contracts Regulation Act (FCRA), 1952.The Commodity Market in India consists of 3 National Exchanges and 21 Regional Exchanges. Multi Commodity Exchange Of India Ltd.(MCX), Mumbai, National Commodity and Derivative Exchange Ltd (NCDEX), Mumbai, The National Multi Commodity Exchange of India Ltd (NMCE). Ahemedabad, are the 3 national exchanges, MCX being the largest of all in terms of volumes traded.National Board of Trade, Indore is the largest of all regional exchanges.The Indian market is regulated by the three-tier regulatory structure, comprising the Central government represented by the Ministry of Consumer Affairs, Food and Public distribution; the FMC and the Exchanges themselves which serve as self-regulatory organizations.

Participants in Futures’ Market:
The market participants include, Farmers/Producers, Merchandisers/Traders, Importers & Exporters, Consumers/Industry, Commodity Financiers, Agriculture Credit Providing Agencies, and Corporates having Price Risk Exposure in Commodities.

However there are challenges. The futures volumes vis-à-vis the physical volumes are relatively lower than markets like the US, UK, China etc. due to lack of awareness among the investors. Growth of futures market itself poses a challenge to the regulatory role of FMC. There is an obvious knowledge gap in the academic and general community about the market. Over dependency of a few commodities and their futures on global markets, poses a challenge.

Economic Indicators and impact!!

Leading Indicators
Release Time: 8:30 ET around the first few business days of the month for two months prior.

The Leading Indicators report is largely a composite of prior indicators such as new orders, jobless claims, money supply, average workweek, building permits, and stock prices. Because the report is highly predictable it is less likely to move the market dramatically.

The Federal Reserve watches leading indicators to aid decision making policy on interest rates.

Housing Starts and Building Permits
Importance: Moderate.
Volatility: Moderate.
Published by: The Census Bureau of the Department of Commerce
Release Time: 8:30 ET around the 16th of the month.
Coverage: Prior Month.

Housing Starts/Building Permits is a leading indicator of economic activity.

Event Fixed Income Equities Dollar
Housing Starts Up Bond Market Down Stock Market Up Little Impact
Housing Starts Down Bond Market Up Stock Market Down Little Impact

Housing Starts and Building Permits
Importance: Moderate.
Volatility: Moderate.
Published by: The Census Bureau of the Department of Commerce
Release Time: 8:30 ET around the 16th of the month.
Coverage: Prior Month.

Housing Starts/Building Permits is a leading indicator of economic activity.

Event Fixed Income Equities Dollar
Housing Starts Up Bond Market Down Stock Market Up Little Impact
Housing Starts Down Bond Market Up Stock Market Down Little Impact

Initial Claims
Source: The Employment and Training Administration of the Department of Labor.
Release: 8:30 ET each Thursday. Data is for week ended prior Saturday.

Initial jobless claims reflects the number of claims filed for state unempolyment benefits in the previous week. Increases in claims potential reflect slowing job growth, and decreases reflect accellerating growth in the job market. Due to the volatility of the number, many analysts look at a four week moving average. Look for a move of at least 30K in claims to indicate a significant change in job growth.

Nonfarm Payrolls
Importance: Highest.
Published by: Bureau of Labor Statistics, U.S. Department of Labor.
Release: First Friday of the month at 8:30 ET for the prior month.

The Non Farm Payrolls release - the change in non farm employment from the establishment data - is the most closely followed economic statistic for the stock and bond markets. The numbers that make up this part of the Employment Report use payroll records - furnishing the most concrete evidence of whether the US is creating jobs.

It is important to note that the change in Non Farm Payrolls includes government jobs - so for a clearer picture of the situation in the private business sector, government positions need to be factored out.

The Employment Report
Importance: Highest.
Published by: Bureau of Labor Statistics, U.S. Department of Labor.
Frequency: Monthly.
Release Time: First Friday of the month at 8:30 ET
Coverage: Prior Month.

Prior to the Employment Report we have only received the Auto Sales and Purchasing Managers Index and analysts have relatively little information to use in forecasting the direction of the economy. The monthly Employment Report is the most timely and broad indicator of economic activity and overall economic health. It provides a wealth of data on almost all sectors of the economy. The report is made up of two separate reports which are the results of two separate surveys.

Firstly, the Household Survey covers roughly 60,000 households and 120,000 people and tells us the unemployment rate. For the purposes of this survey, a person is considered unemployed if they do not have a job and are actively seeking employment.

Secondly, the Establishment or Payroll Survey covers 375,000 businesses, producing the nonfarm payrolls, average workweek, and average hourly earnings figures. Being larger and more comprehensive, the establishment survey is more closely watched. Payrolls are broken down into sectors including manufacturing, mining, construction, services, and government. The manufacturing sector is closely followed as it often leads the business cycle. A person is considered employed if they are on a firms payroll for any part of the pay period that includes the survey week. Federal government employment is an exception, being measured at the end of each month.

The average workweek is an important determinant of such monthly indicators as industrial production and personal income. Average workweek also reflects labor market conditions. A rising workweek early in the business cycle may indicate that employers are preparing to boost their payrolls, while late in the cycle a rising workweek may suggest that employers are having difficulty finding employees. Average earnings are used to gauge potential inflation. Broadly speaking, the employment report helps to forecast many other indicators. For example, a weak Employment Report can suggest a disappointing Retail Sales Report.

Market Reaction:
Event Fixed Income Equities Dollar
Payroll Employment Up Bond Market Down Stock Market Up Dollar Up
Unemployment Rate Up Bond Market Up Stock Market Down Dollar Down
Payroll Employment Down Bond Market Up Stock Market Down Dollar Down
Unemployment Rate Down Bond Market Down Stock Market Up Dollar Up

Auto and Truck Sales
Importance: Medium.
Source: Individual auto manufacturers, seasonal factors by the Commerce Department.
Volatility: Moderate.
Release: Date varies by auto maker from the first business day to the third business day of the month. Data is for month prior.

The Auto and Truck Sales data measures the monthly sales of all domestically produced vehicles. These sales comprise approximately 25% of total retail sales. The demand for autos and trucks is interest rate sensitive and a leading indicator of consumer demand.

Market Reaction:
Event Fixed Income Equities Dollar
Auto Sales Up Bond Market Down Stock Market Up Dollar Up
Auto Sales Down Bond Market Up Stock Market Down Dollar Down

The Purchasing Managers Index (PMI)
PMI measures how well the manufacturing sector is doing. PMI's index is based on five major indicators: new orders, inventory levels, production, supplier deliveries, and employment.

Released By: Institute for Supply Management (ISM) - Formerly the National Association of Purchasing Managers (NAPM) the first business day of the month, 10:00am EST. The markets usually react as follows:

Fixed Income:
NAPM up = Bond Market down NAPM down = Bond Market up
Equities:
NAPM up = Stock Market up NAPM down = Stock Market down
Dollar:
NAPM up = Dollar up NAPM down = Dollar down

Industrial Production
Importance: Moderate
Volatility: Low
Source: Federal Reserve
Release Time: 9:15 ET around the 15th of the month.
Coverage: Prior Month.

The Industrial Production and Capacity Utilization Report describe what is going on in the manufacturing sector. These figures are not difficult to predict, and therefore have a low impact on the market.

Market Reaction:
Event Fixed Income Equities Dollar
Industrial Production Up Bond Market Down Stock Market Up Little Impact
Capacity Utilization Up Bond Market Down Stock Market Up Little Impact
Industrial Production Down Bond Market Up Stock Market Down Little Impact
Capacity Utilization Down Bond Market Up Stock Market Down Little Impact

Personal Income and Consumption
Importance: High.
Source: The Bureau of Economic Analysis of the Department of Commerce.
Release Time: 8:30 ET the fourth week of each month (data for the month prior).
Volatility: Medium.

The Commerce Department releases the Personal Income and Consumption figures the fourth week of each month, the day after GDP figures are published, using data from the previous month. Personal income is used to guage future consumer demand. The largest component of Personal income is wages and salaries. Other categories include rental income, government subsidy payments, interest income, and dividend income. A component of this figure covers personal consumption expenditures or PCE. PCE is comprised of three categories: durables, nondurables, and services.

Market Reaction:
Event Fixed Income Equities Dollar
Personal Income Up Bond Market Down Stock Market Up Dollar Up
Consumption Up Bond Market Down Stock Market Up Dollar Up
Personal Income Down Bond Market Up Stock Market Down Dollar Down
Consumption Down Bond Market Up Stock Market Down Dollar Down

Retail Sales
Importance: High.
Volatility: High.
Source: The Census Bureau of the Department of Commerce
Release Time: 8:30 ET around the 13th of the month.
Coverage: Prior Month.

Retail Sales can be a major market mover, and can be subject to significant revisions. This report measures the strength or weakness of consumer spending, using the total receipts of retail stores.

Market Reaction:
Event Fixed Income Equities Dollar
Retail Sales Up Bond Market Down Stock Market Up Light Impact
Retail Sales Down Bond Market Up Stock Market Down Light Impact

Michigan Consumer Sentiment Index - MCSI
The MCSI,conducted by the University of Michigan, is a valuable guide to changes in consumer attitudes that may influence spending behavior. The preliminary data is released on the tenth (except on weekends) of each month. A final report for the prior month is released on the first of the month.

EIA Inventory Reports
Each Wednesday the Energy Information Administration (EIA), a branch of the Department of Energy (DOE) releases inventory reports outlining activity in the energy sector at 10:30 AM EST.

The reports summarize weekly energy supplies and consumer consumption rates. The EIA petroleum inventory reports influence the price of crude oil and the energy market as a whole.

Gold:A reason to own!!

The CEO of Freeport Mcmoran was on CNBC US, the other night. While the stock indexes plunged globally here was one guy with a smug smile on his face.

Reason: they own the biggest gold mines on earth and no new Gold discoveries have come about. At most a $ 1000 per ounce price tab, will see money being pushed into marginal mines to pull out whatever metal is left under the surface. In the entire history of mankind, the total physical Gold that has been mined equals a Cube with one side about 35 feet in height. Most of this Gold is held by individuals in Asia, and demand is rising as younger families set up homes and buy bullion to build and protect wealth. But there is no more metal in sight..so a possible multi-year bull market in Gold is in the making, that should see metal prices cross the $ 1500 to $ 2000 an ounce figure in maybe 2 years from now.

Miners can scarcely believe their eyes as gold soars through another 28-year record. How far can it go? So much money to spend digging! Suddenly there is no shortage of bullish forecasters to cheer them on!

Earlier this year US investment bankers Morgan Stanley saw a target of $ 800 an ounce for 2008. Then Goldman Sachs came in with an $850. The two bankers outbid themselves. And then there were the cautious Swiss. Its bankers UBS put up a miserable $760 for 2008 and $700 for 2009. They had been going for $650 and $550 respectively – whoops!

Australia ’s Bureau of Agriculture and Resources isn’t getting over-excited either. Being economists, they talk in averages. For 2007 they’ve computed $675 and for 2008 a figure of $685. At least we can understand that they don’t think gold will fall far. French bankers Societe Generale have been coy on a precise target, but are less bullish now gold’s gone through $750. Yet the Dutch, at bankers ABN Amro, are forecasting that gold will have a very good Christmas indeed.

Waves of investment and speculation
Maybe the Swiss, French and Aussies bankers aren’t so wrong to be cautious. UBS refers to the jewellery demand and the attention being given to gold by investors and speculators.

Its analysts are seeing “waves of investment and speculation”. (Trust the Swiss to spot the money flows. That’s why they’re going for wide price swings).Given the volatile conditions, that seems to be the pattern of all markets this decade, so profit taking should be expected.

Will it stay up, or will it go down? Everyone seems to be looking for inspiration in different places. Isabel and I have researched the world over, clicking our mice and logging notes.

Morgan Stanley is looking at global growth and spreading inflation problems. Both are good for gold. The record high oil price is doing more than its bit to fuel inflation fears. The International Energy Agency prompted oil forecasts of $100 for this winter, referring to “a lofty deficit.” The Germans, in the form of refining group Heraeus, said they were keeping an eye on oil in response to another factor - declining South African mining output. It was down 5.2% in the third quarter on a year ago.

The Germans also focus on central bank gold sales. That’s a huge point. Reducing central bank sales have brought gold up from 1999s depths of $251. And they have good reason note it. Germany’s Bundesbank is the largest central bank in the Eurozone. It has said it will sell only eight tonnes of its 120 tonne allocation in the new Central Bank gold agreement year (it starts this month). The remaining 3,414 tonnes will be held back.

ALL down to ETFs?
South African broker Macquarie First South is saying it is ALL down to the investors in Exchange Traded Funds (ETFs). “The ETFs are actually driving the gold price because there’s so much money going into ETFs,” the broker’s analyst David Hall says.The Indians are looking at themselves. India’s gold imports for jewellery have been a major impetus to the gold price rise. The peak gold-buying Dussehra and Diwali festivals are celebrated in November.

In the January-June period Indian gold imports shot up nearly 90% to 521 tonnes. Not only is the country increasingly prosperous, but the rupee has been rising. That has kept the gold price below the sensitive Rs 10,000 per ten gram level. While forecasts for increasing gold consumption are being cut over there, they still show a 15-25% increase.

More importantly, in a nation of 1 bn people, a couple of million marriages take place across the country in the months from Diwali to February, and even small amounts of gold bought per marriage of say 200 to 300 ounces works out to a whopping 200 mn to 300 mn ounces of Gold demand in perpetuity. Some agreeably will be re-cycled Gold, but the rest is demand for fresh Gold mined out of the Earth.

The coming years can be different as Governments rapidly de-base currencies and a Nation which had seen slavery for nearly 200 years will revert to buying even more Gold, in place of all other assets including cash and currencies.

In London the precious metal traders were looking at the weakness of the dollar against the Euro. Traders Virtual Metals is another with an $800 forecast. That’s based on the dollar falling along with US interest rates.

Also scoring in our log is that “super fund” set up by the big three US banks to help out market liquidity. Predictably, comment comes from JP Morgan. This should keep US interest rates, and thus global liquidity, accommodative it says. So, “inflation-related pressures on gold will continue”.

De-hedging programmes at the mines have been providing yet more backing for gold. Those smart Australian economists quite rightly make a big thing of this. If the miners put tonnes of their future, as well as present, production on the market, that is a big dampener. Miners may “hedge” or guarantee their income by doing this. The weight of supply kills the price.

Rising gold removes the incentive to sell future production. “In the first half of 2007, gold producers reduced their outstanding hedge positions by around 300 tonnes, providing strong support for the gold price,” says the Australian Bureau of Agricultural and Resource Economics’ latest commodity review. Majors who did this included Barrick Gold, Newmont, Lihir Gold, and AngloGold Ashanti.

Everyone is trying to pick the top
There are detractors around. Better be prepared for the “bears”. As traders Marex Financial point out: “Everyone is trying to pick the top.” The hedging issue is raised at Japanese broker Mitsui. Its head of precious metal research, Edel Tully, says it was inevitable that the rate of de-hedging would slow.

Last year the gold price was helped by production falling to a ten-year low. At the moment world gold production is expected to be roughly stable. Less from South Africa, more from Australia, and merging producers like China. That may change.

Still, the dollar is key. UK bankers HSBC put it succinctly: “We have long maintained that the US dollar is the primary influence in determining gold prices.”
Complaints about the effect of the lower dollar on export markets are coming from Europe and China. Will Washington listen when there is an $800 billion-a-year current account deficit to worry about? Undoubtedly not!

So, not many points to trigger profit-taking, then.

Gold:The price is surging so fast, its hard to keep!!

Courtsey:Rob Mackrill

The price of gold is surging higher so fast, it's hard to keep up. At time of writing it is at $843, only $7 short of its all time high. The price is being stoked by Morgan Stanleys talk of a more violent correction in the dollar, says a note from Gold Investments. Also, comment from Cheng Siwei vice-Chairman of the National Peoples Congress, that reserves should be diversified out of the dollar into other stronger currencies. That is expected to include gold - an intention that will be helped by its increasing domestic mining production.
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‘Oil and gold leap as investors flee the dollar,’ reads the Reuters headline.

Ah, the meat and two veg of the Daily Reckoning…

US light crude is just two bucks shy of the centurion. That is to say $100. Will it make it, we wonder?

Yes, said my oil trader friend last night. It will then fall back below, regroup and head higher still. Well that’s his bet anyway. But we tend to listen to his views closely given the last call was bullish at around the $60 level.

Worse he sees war coming and notes the oil coming out of Saudi is heavier these days, suggesting they’re getting towards the bottom of their vast but aging reservoirs. Saudi accounted for 13% of world production last year, but total production declined 2.3% over the previous year.

As for gold, the price is surging higher so fast, it’s hard to keep up. At time of writing it is at $843, only $7 short of its all time high. It’s already at all time nominal highs (ie not adjusted for inflation) and pushing higher against both the euro and pound, having hit €575 and £402 respectively.

The price is being stoked by Morgan Stanley’s talk of a more “violent correction” in the dollar, says a note from Gold Investments, as an FT headline warns of a possible fire sale of mortgage-backed securities. Also, comment from a senior Chinese politician, Cheng Siwei vice-Chairman of the National People’s Congress, that reserves should be diversified out of the dollar into other “stronger currencies”.

That is expected to include gold - an intention that will be helped by its increasing domestic mining production. The Chinese Gold Association expects to become the world’s number two producer this year, says an FT report and eventually top South Africa’s long held position as the world’s largest producer.

News of Cheng Siwei’s comments saw the dollar sink to 1.46 against the euro and $2.10 against the pound. This is the pound’s highest level against the greenback since 1981.

Yesterday was a pretty good day to hold a conference devoted to ‘poor man’s gold’. As silver hit a 27-year high at $15.50 there were some cheerful faces at London’s Silver Summit. It did even better this morning, topping $16.

With gold making the headlines, silver doesn’t get a lot of attention. You may be surprised to learn that the its price appreciation in the past couple of years has actually exceeded that of gold claims Rolf Nef, a Swiss fund manager with the kind of jumbled English and wild glint in his eye that makes you think... here’s a maniac. However, from what we could make of the quickfire slide show we certainly suspect he’s on to something...

Nef is a Swiss money manager and runs a fund which boasts 50% of its holdings in physical gold and the balance in silver options.

His fund fact sheet begins:

“Investment Idea: The world is swimming in a sea of debt (circa. $120trn), growing every day, which creditors think is money. The most practical money without a counter party is gold and silver.”

You get the picture... He presented for the second year running. And his message was the same this year as last. Sell your house and buy gold and silver. He even asked the audience whether anyone had taken him up on the advice from last time. One hand went up… and he was smiling.

Wake up to Gold!!--Mark O' Byrne

Successful investing is about the diversification and management of risk. In layman's terms this means not having all your eggs in one basket. We know from history that markets can and do occasionally crash and if you are not diversified, your nest egg can be severely affected. This principle is an important one and should be observed by all investors. A healthy portfolio includes a wide range of assets. Holding gold bullion in a portfolio can provide distinct benefits in the form of speculative gains, investment gains, hedging against macroeconomic and geopolitical risk and or wealth preservation.

One of the most well known auditors in the world is David Walker. He is the top auditor of the U.S. government - the Comptroller and Auditor General and the head of the non-partisan Government Accountability Office (GAO). He cannot be pigeon-holed as a “doom and gloom merchant”.

Last March he was interviewed on CBS’ “60 Minutes". He said that politicians in Washington were "bankrupting America". He's now on a "Fiscal Wake-up Tour” across America taking his message directly to the people, as he feels that much of the media and politicians in Washington are ignoring the massive long term fiscal challenges facing the U.S.

This August he wrote apiece in the opinions/editorials section of the Financial Times where he outlined his concerns: "America is a great nation, probably the greatest in history. But if we want to keep America great, we have to recognise reality and make needed changes... There are striking similarities between America's current situation and that of another great power from the past: Rome.

"The Roman Empire lasted 1,000 years, but only about half that time as a republic. The Roman Republic fell for many reasons, but three reasons are worth remembering: declining moral values and political civility at home, an over-confident and over-extended military in foreign lands, and fiscal irresponsibility by the central government. Sound familiar?"

There are clear parallels between the huge challenges facing the US socially, politically and economically and those that led to the fall of the Roman Empire. With the emergence of rival superpowers such as China in the 21st Century, investors would be wise to be cognoscente of these big picture geopolitical trends and invest accordingly.

Successful investing is about the diversification and management of risk. In layman's terms this means not having all your eggs in one basket. We know from history that markets can and do occasionally crash and if you are not diversified, your nest egg can be severely affected.

This principle is an important one and should be observed by all investors. Most investors have most of their wealth in the stock and property markets. This strategy of having nearly all our eggs in these baskets has been successful in recent years. However, past performance is no guarantee of future returns and there are increasing signs that it would be wise to reduce allocations to these asset classes and look at other asset classes.

A healthy portfolio includes a wide range of assets including a properly diversified residential and commercial property portfolio; a variety of equities with exposures to different market sectors and regions; a small allocation to a variety of conservative government bonds; a ‘rainy day’ cash component and a 10-15% allocation to gold bullion.

Holding gold bullion in a portfolio can provide distinct benefits in the form of speculative gains, investment gains, hedging against macroeconomic and geopolitical risk and or wealth preservation. Importantly, gold is the only asset class with an inverse or negative correlation to the US dollar and to conventional assets such as bonds, stocks and property all of which are denominated in fiat paper currencies such as the US dollar, the Euro and the British pound.

Traditional asset allocation theory, as represented by the investment pyramid, advocates higher risk speculations at the top, with lower risk assets at the bottom. Futures contracts, options, individual shares and spread betting should be placed at the top of the pyramid, while cash equivalents and physical bullion, either fully allocated or delivered (as is done by the world’s Central Banks) should form the foundation or base.

In dollar terms, gold returned 24.75% in 2006, rising from $497 to $620 per ounce. It thus completed its 5th year of gains and is up by more than 160% in the last 5 years. So far in 2007, gold has returned 22.5% in dollar terms, rising from $620 to $760 per ounce.

Most commodity analysts remain bullish on both gold and particularly silver and believe that they are now both in multi-year bull markets. Commodities, like all asset classes follow long term economic cycles. Commodities increased in value in the late 1960’s and 1970’s. They broadly declined in value in the 1980’s and 1990’s and have been rising again since 2001.

We are not as confident on the outlook on some commodities such as base metals and some soft commodities which are more cyclical in nature and would likely be affected by a slowdown in the U.S. and global economy. Gold on the other hand is not solely a commodity but more importantly a universal finite currency held by every Central Bank of note in the world.

It is the only currency academically proven to have an inverse correlation to conventional assets such as bonds, equities and property. We believe gold will surpass its non-inflation adjusted high of $850 per ounce by early 2008 and its inflation adjusted high of some $2,400 per ounce in the next 10 years.

Highly respected analyst, Louise Yamada sees gold surpassing $730 this year on its way to $3,000 within a decade. “Gold is the purest play against the dollar,'' said Louise Yamada, managing director of Yamada Technical Research Advisors and former head of technical research at Citigroup. Yamada was voted Wall Street’s best technical analyst from 2001 to 2004.

Among the world's biggest financial institutions such as JPMorgan Chase & Co., Merrill Lynch and UBS, gold is also favoured by their analysts. Deutsche Bank AG's chief metals economist, Peter Richardson, made gold his favourite pick for 2007. “If you can only make one commodity investment,'' gold is the “choice for 2007.”

Gold is becoming Wall Street's darling again due to what Bloomberg's Pham-Duy Nguyen said was “the swooning U.S. dollar, which has become a proxy for the slowing American economy and the nation's humiliating lack of success arranging regime change in Iraq, banning weapons of mass destruction in North Korea and Iran and reducing its trade and budget deficits."

The fundamental reasons for owning gold and silver in the last five years have not changed, indeed most of them have become stronger:

Demand factors:

.A record and unprecedented US trade, budget & current account deficits.
.Rising oil & energy prices with the consequent inflation and gradual realisation that ‘Peak Oil’ is a reality.
.Overvalued, plateauing and falling property markets.
. Rising interest rates in the US and globally.
.Record consumer, mortgage and national debt levels in the US and much of the western world.
.Increasing pensions stresses from underfunding and the 'demographic time bomb' of retiring ‘Baby Boomers’.

The growing realisation of the long term impacts that global warming will have on all societies and economies as outlined in the Stern Report.

.Geopolitical instability and the ‘War on Terror'.
A depreciating and declining US dollar - the global reserve currency.

Increasing global investor demand for safe haven assets. Also, Central Bank demand for gold to provide currency backing and stability to monetary reserves.

Supply Factors:
.It is estimated that all of the above ground stocks of gold ever mined could fit into a 20 metre high cube. Gold is thus very rare and in limited supply.
.Gold production is stagnating and gold output in the leading gold producing countries continues to stagnate despite higher gold prices. This is leading geologists to wonder whether we have reached the point of peak gold production.
.It takes 10-15 years to take a mine to production and many mines have closed down in recent years.
.High energy prices make mining an expensive proposition.
Environmental legislation stymies mine development.
Many mines are in unstable countries and regions such as South America, Africa, the Middle East and Russia.
.Central banks sales have slowed and in some cases reversed; the Argentinian, South African, Russian and Chinese central banks are some of the more significant buyers of gold in recent months.

Investing in gold bullion has its tax attractions too. The EU harmonised the treatment of gold for investment purposes in 2000 with the introduction of the EU Gold Directive. It means that investment grade gold bullion for investment is now tax free throughout the EU. There is no VAT and gold bullion is stamp duty exempt (unlike property and equities) throughout the EU. The only tax applicable is capital gains tax which is applicable on the majority of investments.

Importantly, residents of the UK, can invest in gold bullion in their pension funds. As of April 2006 they can invest in gold bullion through their Self-Invested Personal Pensions (Sipps). US citizens can already do so in their Individual Retirement Accounts (IRA’s).

Gold bullion is allowed in a pension fund providing it is investment grade gold which is gold of a purity not less than 995 thousandths or 99.5% pure and that the bullion must be immoveable and stored with a secure and regulated third party. It cannot be taken in physical possession and used as a “pride in possession” asset.

The Perth Mint Certificate Programme, as the only government-owned and run gold certificate programme in the world, fulfills this criterion. It is the oldest operating mint in the world (established 1899) and has an AAA rating from Standard and Poor’s and as such is a legitimate way UK investors can invest in gold bullion within their Sipp.

Risk conscious investors have long known that gold is a sound investment choice. Gold is stable in times of global geopolitical instability and when economic uncertainty, recessions and depressions prevail. Used correctly, gold and silver can be highly effective components of a properly diversified investment portfolio.

Gold remains an under-appreciated, under-owned and undervalued asset. Most investors remain ignorant about gold and sometimes fundamentally misunderstand it. At the beginning of the 1970s, when gold was about to undertake its historic move from $35 per ounce to $850 per ounce for a return of nearly 3000% in the subsequent 10 years, the same observations would have been valid. The only difference between then and now is that the fundamentals are actually even stronger today.

While the U.S. is unlikely to go the way of Rome anytime soon, the significant long term fiscal challenges facing the U.S. as outlined by the Comptroller General, David Walker, suggest some diversification into gold makes sense.

Gold: The Anti-Dollar Cash Position-Lord William Rees-Mogg

Nils Taube has set up a new open ended investment company, S&Ws Taube Global Fund. At present almost 15% of the fund is in cash after the fall of the U.S. subprime lending market. It is heavily weighted in gold, with about 8% of the fund in gold bullion and 12% in gold shares. In all, just over 30% of the fund is invested in energy stocks, including oil and gas. Obviously, this balance of the portfolio shows that Mr. Taube has, once again, got major trends right. He will not have lost money in financial shares. He will have benefited from the rise in oil and gas prices and the gold price.

I have known Nils Taube, the London fund manager, for over fifty years. He has a unique long term track record since I first met him as a young partner in Kitcat and Aitken, a pre big bang firm of London stockbrokers. In the 1980s we were both members of one of Jacob Rothschild’s boards.

Last April, Nils, who is in his late seventies, set up a new open ended investment company, S&W’s Taube Global Fund, which currently has £40 million under management. The Financial Times devotes most of Ellen Kelleher’s Fund Focus column of October 24th to the current policy of the Taube Global Fund. This is an opportunity to study the current strategy of an outstanding investor.

Nils Taube has always been particularly good at making money in difficult periods. He has a temperament which could be described as one of realistic optimism, and has never been a “gloom and doom” investor. This makes it more significant that he has structured Taube Global so that the fund is strongly defensive.

At present almost 15% of the fund is in cash after the fall of the U.S. subprime lending market. It is heavily weighted in gold, with about 8% of the fund in gold bullion and 12% in gold shares. The FT quotes Mr. Taube as saying “we regard gold as an anti-dollar cash position”. There is an exposure to Japan and to energy stocks, including BP and Shell and United Tar Sands, the Canadian tar sands group. In all, just over 30% of the fund is invested in energy stocks, including oil and gas.

Nils Taube is at present suspicious of investment in banking and financial companies. He sets a high standard of liquidity for his investments so that he can trade in and out of them quickly. He is avoiding the shares of companies which rely on credit, “no matter how sound these investments may appear on paper”.

Obviously, this balance of the portfolio shows that Mr. Taube has, once again, got major trends right. He will not have lost money in financial shares. He will have benefited from the rise in oil and gas prices and the gold price. What I find significant, having known his investment response to the varying markets of over half a century, is that he still feels so cautious.

If he is right now, then the oil price is likely to remain high, and may go much higher, the gold price is in a long term bull market, yet the credit market will remain volatile and uneasy. Nils was getting his major calls right in the very difficult and inflationary decade of the 1970s. I suspect that he is again getting his calls right.

Commodity Market Cycles-Dr.Marc Faber

I have great sympathy for the view that over the last 200 or so years investments in commodities performed poorly when compared to cash flow-producing assets such as stocks and bonds. I also agree that, as the team at GaveKal suggests, "every so often, we experience a massive break higher in commodity prices in which commodity indices triple in less than three years," which is then followed by a period of poor performance.

Still, we need to ask ourselves why in the last 200 years, commodities, adjusted for inflation, were in a continuous downtrend and whether it is possible that something might have changed in the last few years, which would suggest that this downtrend is about to give way to a sustained out-performance of commodities compared to the US GDP deflator.

The other question is of a more near-term nature. Should commodities, having approximately trebled in price since 2001, be sold, or should we expect far more substantial price increases? I have to confess that I have little confidence that I can answer these questions satisfactorily. Still, the following should be considered.

In the 19th century, and for most of the 20th, industrialization was concentrated in a few countries, which for simplicity we shall call the Western industrialized world. The world's economy was at the time characterized by an abundance of land, resources, and cheap labor (certainly in the colonies and later in the developing countries) and a relatively limited supply of manufactured goods. At the same time, growth and progress was concentrated among a very small part of the global economy - either in the Western industrialized countries or among a tiny part of the population (the elite) in developing countries. In addition, there were hardly any other sectors in the economy where productivity improvements were as high as in agriculture and mining. These factors - abundance of land, labour, and resources combined with huge productivity improvements and limited demand from the then still small industrialized world - may, at least partially, explain why commodity prices failed to match consumer price increases for much of the last 200 years.

Remember that, in the first half of the 19th century, manufacturing was concentrated in England with a tiny population, while the British Empire could draw on the supply of commodities from an enormous territory. Then, in the second half of the 20th century, we experienced the socialist and communist ideology, and in India policies of self-reliance and isolation.

Commodity market cycles: Socialism and communism
As a result, about half the world's population remained largely absent as consumers of goods. (How many motorcycles and cars were there in the Soviet Union, China, India, and Vietnam 25 years ago?) But, while largely absent as consumers, people in these countries continued to produce raw materials and agricultural products. Therefore, I suspect that the removal of approximately half the world's population as consumers through socialism and communism may have been an important factor in the poor long-term performance of commodities compared to the US GDP deflator, and other assets such as equities.

Since the breakdown of communism and socialism, the world's economic fundamentals seem to have changed very importantly. Initially, the impact of the end of socialism was muted. Production shifted to China, but as had been the case with production shifting from the West to Japan, South Korea, and Taiwan between 1960 and 1990, rising industrial production in former communist countries largely substituted for production in the West. But over time, in countries such as China, rising investments and industrial production boosted real per capita incomes considerably and made way for a tidal wave of new consumers. In turn, these additional new consumers lifted industrial production further in order to satisfy not only the demand from their export markets but their own needs as well.

Thus, industrial production and capital spending increased further. This led to additional income and employment gains, further domestic demand increases and so on (multiplier effects).

Commodity market cycles: Shifting demand
In short, the opening of China and of other countries has permanently shifted the demand curve for consumer goods and services (for example, transportation) to the right and along with it the demand for industrial commodities and, notably, energy. Now, if all goes well in India (a big if, I concede), then the demand for goods, services, and hence commodities will continue to increase very substantially for another 10 to 20 years.

Indian oil consumption has just recently started to turn up. Should its demand now accelerate, as we believe it will do, it is very likely that China's and India's oil demand could double in the next eight years.

There are a few more points to consider. For much of the last 200 years, developing countries, where many of the world's natural resources are located, had trade and current account deficits with the industrialized world. These deficits were a constant drag on these countries' ability to accumulate wealth. But now, through its current account deficit, the United States is shifting around $800 billion annually to the economically emerging world.

This represents a huge shift in wealth from the rich United States to the current account surplus countries. That this shift in wealth stimulates their economies and consumption, and along with it their own demand for commodities, should be clear. (Rising domestic energy demand in Indonesia amidst falling production has turned the country into an oil net importer!) Now, for most countries a current account deficit the size of that of the United States would lead to some sort of crisis (for example, the Asian crisis of 1997) and then to a curbing of consumption. However, in the case of the United States, which is endowed with a reserve currency, trade and current account deficits are simply financed by "money printing."

Commodity market cycles: Global economic expansion
So, at least for a while (but not forever), the shift in wealth to the emerging world won't have a negative impact on America's economy and consumption. And, at least for now, rising demand and wealth in the rest of the world won't be offset by declining demand and shrinking wealth in the United States. On the contrary, the global imbalances arising from "over-consumption" in the United States have brought about a global economic expansion, which, while unsustainable in the long run, is nevertheless firing on all four cylinders at present. Simply put, the excess liquidity which the Fed has created - and which it is still creating, I might add - has led to a global and synchronized economic boom. (If money were tight, the asset markets wouldn't rise.)

The following point regarding the demand for commodities is frequently overlooked. In the developed countries, commodities account for a very small part of the economy. As a result, price increases for oil and other commodities have a very minor impact on growth rates and on consumption. However, in the commodity-producing countries (Middle East, Africa, Russia, Latin America), commodity production is an important part of the economy.

So, when commodity prices rise, their economies are, as in the case of the Middle East, turbo-charged. GDP per capita then soars and leads to a consumption and investment boom, which then increases these countries' own demand for commodities. This is particularly true for resource-rich countries that have a large population and also explains why, in the 19th century, when agriculture was still the dominant sector in the US economy, rising grain prices led to economic booms, while declining commodity prices were associated with crises. (In recent years, financial markets have begun to have a similar impact on economic activity as agriculture had in the 19th century: rising stock markets = boom; falling stock markets = bust.)

In sum, we could argue that the emergence of a large number of new consumers in the world following the breakdown of communism, expansionary monetary policies in the United States, which have led to a rapidly growing current account deficit, the US dollar's position as a reserve currency, which enables the Fed to create an almost endless supply of dollars, and new demand from the commodity producers themselves, have all led to a significant increase in the demand for raw materials.

I am not predicting here that, from now on, the demand for commodities will always outstrip the supply. In time, new technologies (in particular, in the filed of nanotechnology), which will permit resources to be used more efficiently, and conservation will curtail demand for raw materials. But until the effects of these factors kick in, a tight balance between rising demand and existing supplies could remain in place for quite some time.

Basic Guide to Commodities Trading!!

If you're new to the world of commodity trading, fear not, because using the platform in India is not beyond anyone's grasp or capability -- it's only a matter of making a beginning somewhere.

If you want to clarify some basic doubts but were afraid to ask, here's your chance to catch up on lost time. Below are some answers to some frequently popped questions.

The basic difference between the commodity exchange and stock exchange is that in a commodity exchange, actual physical products that are non-financial in nature are traded.

These include agricultural products such as wheat, castor, groundnut or sesame and industrial products such as aluminum, zinc, nickel and also precious metals like gold and silver.

In comparison, a stock exchange offers all financial products such as stocks, indexes, interest rate, and government securities.

• Trading in any contract month will open on the 21st day of the month, 3 months prior to the contract month. For example, the December 2004 contract opens on 21st September 2004.
• In commodities, the 20th day of the delivery month would be the due date. If the 20th happens to be a holiday then the due date would be the previous working day.
• Typically, the margins for trading vary from commodity to commodity. For a more liquid commodity like gold or silver the initial margin and the exposure margin would be typically 4 per cent each. However, in other commodities the margins could vary depending on volatility of the commodity prices.
• The pay-in (T+1) will be on or before 11.00 a.m., payout on or after 12.00 noon.
• All contracts settling in cash would be settled on the following day after the contract expiry date.
• Deliveries are not compulsory. The buyer and the seller would have to express their intentions while to give or take delivery entering the contract. The exchange would match the deliveries at the client level. Contracts that are not assigned delivery are settled in cash.
• In case of physical delivery, a receipt from the warehouse where the goods are stored is issued in favour of the buyer, which is transferable. On producing this receipt the buyer can take the commodity from the warehouse.
• Where settlements go, for open positions at the beginning of the tendering period of the contract the buyer and the seller can give intentions for delivery.

Intentions for delivery could be given right until the final day on which that the contract expires. Delivery would take place in electronic form (in the national level exchanges). All other positions would be settled in cash.

• Any buyer would have to put in a request to take physical delivery to its depository participant, who would pass on the same to the warehouse manager. On a specified date, the buyer would have to go to the warehouse and pick up the physical delivery.
• The seller intending to make delivery would have to take the commodity to the designated warehouse. These commodities would have to be certified by an exchange-specified assayer.

The commodity that is meant for delivery would have to meet the contract specifications with a certain allowance for variances. If the commodity meets the specifications, the warehouse would accept it.

Warehouses would further ensure that the receipt is updated in the depository system, giving the due credit in the electronic account.

Also, every client who would want to give or take delivery would have to get registered as per the prevalent sales tax rates in his or her state.

Armed with the basic information, any trader should be ready to take the leap!

Are you new to Commodities Trading?

Why Commodities

• Investors looking for a fast-paced dynamic market with excellent liquidity can now trade in Commodity Futures Market.
• Commodity is an asset class that is negatively correlated to equity markets & this feature helps in providing diversification to one’s portfolio.
• Commodities tend to be less volatile than equities & the margins to be paid upfront are lower than in equity F & O Markets. This gives the trader/investor more Leverage & better risk-adjusted returns.
• Hedging: Mitigate your risk of commodity price fluctuations.
• Arbitrage Opportunities: Take the advantage of price spreads, calendar spreads.
• Prices are pegged to International Markets of NYMEX, CBOT, CME, LME.

National Level Commodity Exchanges In India Offering Trading Facilities In Multiple Commodities.

National Commodity & Derivatives Exchange (www.ncdex.com)
Multi Commodity Exchange of India Ltd. (www.mcxindia.com)

Intra Day Fluctuations In Commodities Market
All major international commodity markets have an impact on the price fluctuations of Indian Commodities market. The timings of the same is as mentioned below.

Tokyo: 5:00am – 10:30am
Hong Kong: 6:30am – 12noon
Singapore: 8:00am – 1pm
London Metal Exchange: 1:50pm – 10:00pm
New York Mercantile Exchange: 5:50pm – 11:30pm
India (MCX & NCDEX – Metals& Energy): 10:00am – 11:30pm
India (MCX & NCDEX – AGRI): 10:00am – 5:00pm

How Is Commodity Derivatives Market Different From Equity Derivatives Market

Underlying Asset
Commodity Derivative:The underlying is a commodity.
Equity Derivative:The underlying is equity

Research
Commodity Derivative:Research is global. It requires study of macroeconomics of world economies & demand supply situations.
Equity Derivative:Research requires study of Balance Sheets, P/E Ratios etc

Trading Hrs.
Commodity Derivative:10am to 11:30pm
Equity Derivative:10am to 3:30pm

Settlement
Commodity Derivative:Cash or Delivery based settlement.
Equity Derivative:Cash Settled

Volatility
Commodity Derivative:Low
Equity Derivative:High

Leverage
Commodity Derivative:High
Equity Derivative:Low

Demat A/c
Commodity Derivative:Required only for deliveries.
Equity Derivative:Mandatory

Initial Margin
Commodity Derivative:5 to 10% of the contract value.
Equity Derivative:Approx. 25% of the contract value.

Price Movement
Commodity Derivative:Purely based on demand & supply.
Equity Derivative:Based on expectation of future performance.

Which Commodities Are Available For Trading

Precious Metals Gold, Silver
Base Metals Steel, Copper, Aluminum, Zinc.
Energy Crude Oil, Brent Crude Oil, Furnace Oil.
Cereals & Pulses Wheat, Rice, Chana, Urad, Tur, Guar, Guargum, Soyabean
Condiments Sugar
Cash Crops Cotton, Jute
Oil Complex Castor, Soya, Mustard, Mentha Oil
Spices Chili, Turmeric, Jeera, Pepper

Commodity Margins & Lot Sizes
The margin ranges between 5% to 10 % of the contract value.

However the change in value of commodity from the price at which you made the Purchase/sale with reference to the daily settlement price reflecting a proportionate Gain or loss. The loss, if any has to be paid up as Mark to Market Margin

Commodity Lot Size Margin (Rs.)
Gold 1Kg 70,000
Silver 30Kg 50,000
Gold Mini 100gms 25,000
Silver Mini 5Kg 25,000
Copper 1MT 40,000
Crude Oil 100 Barrels 25,000
Soyabean 10MT 10,000
Urad 10MT 35,000
Chana 10MT 20,000
Sugar 10MT 20,000
Jeera 3MT 25,000

Return on Investment

Commodity Average Intra Day Movement Return (Rs.)
Gold Rs. 60 – Rs. 100 Rs. 100 / 1 Rupee Movement
Silver Rs. 100 – Rs. 300 Rs. 30 / 1 Rupee Movement
Crude Oil Rs. 30 – Rs. 60 Rs.100 / 1 Rupee Movement
Urad / Chana Rs. 40 – Rs. 60 Rs. 100 / 1 Rupee Movement
Sugar Rs. 15 – Rs. 25 Rs. 100 / 1 Rupee Movement
Mentha Oil Rs. 10 – Rs. 30 Rs. 360 / 1 Rupee Movement
Copper Rs. 3 – Rs. 8 Rs. 1000 / 1 Rupee Movement
Zinc Rs. 2 – Rs. 5 Rs. 5000 / 1 Rupee Movement

Is there Danger in this Gold Run??

Author: Boris Sobolev

While many market observers are waiting for a correction, gold is pushing relentlessly higher. After it powered through $700/oz, pullbacks on gold became short and shallow. A correction in gold will no doubt come, but we are not willing to bet money on how soon it will occur and how serious it will be.

The weekly chart of gold below shows an overbought condition but a year and a half ago gold was far more overbought time-wise and price-wise. By following the 2003 and 2005 gold rally patterns we can expect a few more months of handsome gains before this rally in the secular gold bull market is over. Any correction at this point would be a healthy sign.

What if, however, we are wrong and gold is now, in fact, making a final spike to its all time high of $850 or higher. The aftermath, as after the top in 1980, could be severe and it would be time to sell? Is this a real possibility?

No, the situation today is completely different:

• In August 1979, Paul Volcker became the chair of the Federal Reserve and start to fight inflation by radically raising interest rates. Today, Chairman B. Bernanke, in an effort alleviate the pain in the ailing banking system, is aggressively lowering interest rates.
• 28 years ago, the United States was the biggest creditor nation in the world. Now, the opposite is the case – US is the largest debtor. This, along with the Fed policy is causing the dollar to fall to historic lows.
• Gold may appear to be overextended but this is not the case in real terms. In fact, gold should be around $3,000/oz in order to reach its inflation adjusted highs. Only then will there be a real reason to worry about a possible end of the gold bull market.

Pulses market turning potentially explosive!!

Rising global grain prices, weakening dollar and firmer ocean freight rates have combined to make pulses imports more expensive. The landed cost is today about Rs 4,000 a tonne higher than it was a few months ago. For instance, for green and yellow peas, importers pay over $450 a tonne, that is at least $100 a tonne more than they did say three months ago. The firming rupee means that Indian importers pay slightly less in rupee terms against dollar contracts; but the overall adverse effect of rising grain prices on the Indian pulses market is clearly visible.

Domestic prices of green and yellow peas are currently at over Rs 18,000 a tonne, up from close to Rs 15,000 a tonne three months ago.Price rise is seen in other pulses too. The threat of a further rise in pulses prices is real, as the demand-supply fundamentals of the pulses market are getting tighter by the day.

Risk premium
Worse, overseas suppliers dealing with India build into their price what is called a `risk premium'. There are risks associated with supply of pulses to India; and one of the major risks is the risk of rejection at the point of entry on plant health grounds. Stem and bulb nematode is one of them. Currently, Indian phyto-sanitary
regulation requires that overseas suppliers fumigate the consignment with methyl bromide. But this fumigant is hardly used in developed countries as it has been phased out.

This condition exposes the overseas supplier to the risk of rejection of cargo on arrival at the Indian port. Exporters say the extant quarantine conditions are too onerous for them to be able to do business with India freely. It is also reported that other importing countries in Asia – China, Pakistan, Bangladesh – do not impose such stringent conditions as India does. One must, however, hasten to add, as an agrarian economy and world's largest producer (13-14 million tonnes), consumer and importer (2.0-2.5 million tonnes) of pulses, India has much at stake as far as agriculture is concerned.

Entry of exotic pests and diseases through the import route can potentially ruin the already fragile Indian agriculture. At the same time, widening demand-production mismatch in pulses has pushed market prices up. Poor consumers are the worst hit. Pulses are the cheapest vegetable protein for poor consumers; yet, per capita availability of pulses has steadily declined over the years.

Govt dilemma
The Government is caught in a dilemma. Import volumes are expanding and imports are an absolute necessity to contain price rise. But the risk of nematode infestation is real too and needs to be managed scientifically, without jeopardizing domestic farming. At the same time, the market would be unwilling to wait. Overseas suppliers
continue to scout for other import-friendly markets.

Some practical solution would be in order. India is currently undertaking a pest risk analysis (PRA) for stem and bulb nematode. The exercise is likely to be completed in the coming months. However, until such time the PRA has been completed and appropriate measures to deal with the identified risks have been developed and implemented, India's pulses imports remain at risk. An interim measure, according to grain sector experts, is that while India should continue the current practice of fumigating imported pulses on arrival in the country, Indian plant quarantine authorities can insist on certificate of test and clearance at the port of loading itself from the supplier country official agency.

For instance, Canada, the largest supplier of pulses to India, has an official agency known as Canada Food Inspection Agency (CFIA), which can conduct tests on basis of pre-agreed sampling and testing methods to certify the safety of consignments.

In any case, on arrival, the Indian Government can make random checks to ensure that imports conform to domestic regulations. Such a move, market participants assert, will considerably reduce the risk faced by overseas suppliers and would bring down the risk premium Indian importers are currently paying.

Quarantine issue
The quarantine issue deserves the most urgent attention for another reason. There is a strong possibility that pulses planting in the upcoming rabi season (summer harvest) would take a hit. Growers are likely to plant more of oilseeds and grains (other than pulses). Minimum support price for wheat has been hiked to a record level of Rs 1,000 a quintal (about $250 a tonne).Worse, in Punjab, Haryana, Uttar Pradesh and parts of Madhya Pradesh and Rajasthan, the soil moisture conditions are less than satisfactory. Farmers are unlikely to take a chance with pulses, but are more likely to favour wheat and rapeseed/mustard.

Output and yield
Output and yield will depend on the quantum of winter rains. Into 2008, pulses prices have a strong upside risk; and the market is turning potentially explosive for reasons both domestic and international.

Major origins such as the US, Canada, Australia may harvest less. If New Delhi wants pulses prices to stay under control, the only way is to augment supplies through imports, and by adopting clearance procedures that are practical and effective without hampering smooth flow of goods.

It is also necessary to review the role of Government parastatals in pulses import. Brave statements of intention to import large quantities do not help any one but the overseas suppliers to further jack up prices. State agencies enjoy a 15 per cent subsidy on pulses import.

This concession is not only unjustified but also distorts the market.In importing pulses and selling in the open market, State agencies discharge a commercial function like any other private trader. There is no justification to treat them preferentially by granting ad hoc concession.

World pepper output likely to drop in 2008

Demand-supply gap seen at 55,000 tonnes

Kochi, Nov. 5 World pepper production is projected to be lower in 2008 at 2,62,400 tonnes as against 2,72,040 tonnes in 2007 and 2,89,230 tonnes in 2006 following weak crop in India, Brazil, Indonesia and Vietnam.

According to the International Pepper Community, there could also be a fall in the carry forward stock which is projected at 61,719 tonnes in 2008 as against 73,404 tonnes in 2007 and 88,384 tonnes the previous year.

Total exports during the current year is estimated at 2,01,700 tonnes as against 2,45,741 tonnes last year while the projection for 2008 has been put at 1,90,800 tonnes. It is against an estimated demand of 2,45,000 tonnes and hence, there could be a gap of around 55,000
tonnes between demand and supply next year.

Though the Indian production has been projected at 50,000 tonnes by the IPC, according to farmer groups it is likely to be around 45,000 tonnes. They attributed the decline to continuous rains in the Madikeri region of Karnataka resulting in severe berry drop. A major planter and agriculture scientist, Dr Jacob Thomas, told Business Line on Thursday that he anticipated a decline of 20-30 per cent in output of the current crop which is expected to be harvested in
December.

He said there were very few pure pepper plantations. Pepper is mainly grown as an intercrop in the coffee estates. Therefore, it is under tree shades without any chances of getting sun light. "The berry drop in these plantations has been severe," he said. However, he ruled out delay in harvesting given the current favourable weather conditions as the berries require sunlight for a fortnight for maturing.

Karnataka normally produces 20,000 – 22,000 tonnes of black pepper annually and because of the berry drop it is likely to be in the range of 15,000 – 16,500 tonnes.

According to farmer sources in Kerala's Wayanad and Idukki districts, the main growing areas in the State, there could be marginal decline because of heavy rains this year. Output in Kerala, they claimed, could be around 25,000 tonnes, while the Tamil Nadu production is estimated at 5,000 tonnes. Thus, the total output of the current crop might hover around 46,500 tonnes, they claimed.

Besides, according to Dr Jacob Thomas, there could be an estimated stock of 4,000 tonnes in Karnataka as the major growers are holding back their produce anticipating the prices to cross Rs 150 a kg in November. "There won't be a distress sale this year because of good coffee prices apart from writing off of coffee loans by the Karnataka Government," he said.

Trading sources estimates put the output for 2008 at 40,000–45, 000 tonnes while the IPC estimates placed it at this year's level of 50,000 tonnes.

The domestic consumption in India for the current year is estimated at 55,000 tonnes while for 2008 it has shown a drop of 10,000 tonnes to 45,000 tonnes, probably anticipating an increase in prices and consequent consumer resistance.

According to market sources, the current situation is favourable for more imports of pepper. Availability of lower grade pepper in other origins at low prices as against high domestic price due to tight supply, appreciation of rupee against dollar and availability of overseas advances at low rates of interest have placed importers in the country at advantageous position, they said.

In the world scenario, Brazilian output in 2008 is projected at 33,000 tonnes as against 36,000 tonnes in 2007 while Indonesian production is at 20,000 tonnes compared to 25,000 tonnes this year.

Vietnam production is also projected to be less by 10,000 tonnes at 80,000 tonnes from 90,000 tonnes in 2007. In 2006 Vietnam produced one-lakh tonne of pepper.

However, Malaysian production is likely to be at 23,000 tonnes as against 20,000 tonnes this year while that of Sri Lanka is projected to be marginally up at 14,900 tonnes compared to 14,640 in 2007.

Courtsey:Business Line