Guar seed futures are trading on a positive note in June due to pick-up in export demand for guar gum amid weaker rupee and increase in crude oil prices.
Moreover, cut in guar production in Rajasthan in its third advance estimates by the state agriculture department coupled with the expectation of below normal rains forecast for August by Indian Meteorological Department (IMD) in its second-stage long-range forecast for the southwest monsoon also support prices in a current month.
The most active guar seed July delivery contract on National Derivatives and Commodity Exchange (NCDEX) jumps more than 6 percent in a week to touch two-month high.
In 2018, guar prices hit a three-year high in January mainly on improved exports demand for guar gum to the US amid increasing crude oil prices coupled with a forecast of lower than expected production.
However, the prices closed lower for the next four months and fell about 25-30 percent from its high due to sufficient supplies and lower than expected exports demand due to higher export prices.
Exports of guar gum, used in shale gas fracking, have improved in May as oil drilling has increased in the US after crude oil prices shot up in recent months. The top guar gum export destination from India is the US, Norway, Russia, China, and Germany.
India's guar gum exports were up 4 percent on year to 55,247 tn in May, as per latest data released by the Agricultural and Processed Food Products Export Development Authority (APEDA). May guar gum export volume was the largest since March last year.
The exports have increased due to weaker rupee as it makes imports cheaper for foreign importers.
However, during the first five months of 2018 (Jan-May), exports are down by 11% at 95,652 tonnes, against 251,880 tonnes in the year-ago period amid higher guar gum prices compared to last year. Overall, guar gum exports have been good in terms of value compared to last season.
Rajasthan is the largest guar seed producer in the country and guar seed prices have an inverse correlation with the monsoon rains for the state of Rajasthan.
In June so far, western Rajasthan has received 28.3 mm of rainfall, 7 percent above the normal weighted average of 28.3 mm for the period, according to data from Indian Meteorological Department (IMD).
As per IMD, rainfall distribution in top guar producing districts in Rajasthan viz Bikaner, Jaisalmer, Barmer, Hanumangarh and Sri Ganaganagar has been above normal in June except for Barmer.
Despite normal rains in June, there is fear of insufficient rainfall in northwestern regions during August as per the second stage long-range forecast for 2018 monsoon.
Moreover, guar seed production in Rajasthan was revised down by more than 20 percent to 12.4 lakh tonnes in 2017/18 from 15.4 lakh estimated earlier, in its third advance estimates by the Rajasthan Agriculture Department.
The guar seed production in Rajasthan is down for the third consecutive year due to diminishing planting area. Since 2014/15, the area under guar cultivation decreased by 26% to 34.3 lakh ha while the production is down by more than 54 percent.
We expect the guar seed prices on NCDEX to trade towards 4,000 (CMP: 3,840 per quintal) due to dip in arrivals, monsoon uncertainty and sustained guar gum exports in coming months as the US is expected to increase its oil and shale gas drilling operations due to higher crude oil prices.