WHAT a difference a week can make! And, as pen was put to paper over the weekend for this report, a few things occurred; chickpea prices rose a remarkable US$60/t as selling slowed, buying interest intensified and new rumours of government intervention entered the market.
To be clear, up front, nothing has changed in India. Import duties are still in place and local prices continue to fall. Add to this, the dry and unseasonally warm conditions in India’s two major producing states still needs watching. Whilst it is difficult to pinpoint a specific reason for this up-move, it is more likely to be a combination of the below:
- We are seeing fresh demand from Pakistan and Bangladesh now. While the Bangladesh business is the normal business we historically see, it is a little earlier than normal due to Ramadan being early this year. The Pakistan demand is somewhat of a surprise to the market, due in part to its stocks hitting very low levels but also from concerns over its new crop due to be harvested in March/April. Conditions are reportedly warm and very dry with crops needing rain by early February to avoid losing yield potential. It is difficult to assess the seriousness of this issue now, but forecasts for the next 2 weeks look quite dry.
- The “government intervention” rumours from the last several days are this; firstly, several Muslim majority countries like Pakistan and Bangladesh may ban imports from Myanmar (Burma). Myanmar is a substantial producer of a range of pulse products, but note they are not big exporters of desi chickpea (circa 30/40,000t per annum). Secondly, reports that Pakistan authorities will not issue import permits for product from India.
In India, with prices depressed and the government re-opening the export doors late last year, it was thought that potential exports from India would “put a lid” on prices and the Aussie exports to Pakistan. I would stress that these are rumours (albeit strong) and still require confirmation from official sources. If true, then unlike the Indian government market intervention, it’s good news for Aussie farmers. I would stress though that longer term, any government intervention is not helpful for markets as it provides instability and uncertainty and hence illiquidity to markets.
- The Indian duty announcement on 22 December 2017 saw the market fall sharply. Little demand was to be found as product already on the water to India had to find new homes. Understandably, buyers in all destinations “stood aside” waiting to see what the fall-out would be and probably some traders who could make sales took the opportunity to get short. With demand now returning these shorts are now forced to cover.
- Last, but not least, the reality of our smaller crop in Australia is finally having some influence on the market too.
Where to from here?
Undoubtedly, the market over-reacted to the Indian duty news and needed to rebound. However, duties in India are a reality and must be properly accounted for in our thinking. Whether this rally is sustainable or not is unfortunately still partly reliant on politics and the outcome of the above-mentioned rumours. Maybe now we can focus on the important stuff like supply and demand.
The upside of the recent price fall is that the market is doing its job and creating some additional demand, however the real market impact will come on the supply side. Over the coming few months we will get a better idea on production in two of the world’s largest producers – India and Pakistan. Brace yourself!!
COFCO Weekly Market Report, 23 January 2018 written by COFCO International.