1 Sakshi Mittal Economist Knowledge Management Group [email protected]+ 91 22 66406568 Guar Seed And Guar Gum: A Fundamental Report Guar seed is a crop that dominates the international business with Indian ascendancy in Guar Gum. Guar a versatile crop with industrial uses and export potential has transformed economic status of a number of farmers in India. As the guar gum, a derivative of the guar seed has found a great potential in the manufacturing sector, the demand for the guar gum and guar seed has grown manifold, providing farmers an incentive to increase the production of guar seed. About 9 lakh families in Rajasthan and other states like Haryana, Gujarat and Punjab depend on guar cultivation, according to as per the Commerce Ministry estimates in 2006. Guar seed has now become a cash crop due to more than 150 guar gum industries operating in India to consume any amount of guar seeds produced. Multiple uses and benefits arising from guar bean acted as strong incentive for smallholder farmers to be interested in growing these seed.
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Movement of Spot And Near-Month Futures Prices Of Guar Seed
Movement of Spot And Near-Month Futures Prices Of Guar Gum
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Prices Of Guar Seed
Futures Prices Of Guar Gum
Price Behavior
There are no Government rules and regulations governing the production, distribution,
marketing, exports or imports of the commodity therefore the market forces determine the
prices. Guar being export oriented commodity its price behavior in domestic marke
largely determined by the overseas demand of guar products. And since the guar products
demand is largely dependent on the number of oil drilling rigs, the domestic guar prices are
indirectly linked to the crude oil prices, as higher crude oil prices
activities, which in turn increases the expectations of higher demand for guar gum and guar
seed. There is quite a bit of co
guar seed can be seen from the following chart.
Figure 11: Co – Movement of Guar seed, Guar Gum and Crude Oil Prices
Source: NCDEX, EIA
There are no Government rules and regulations governing the production, distribution,
marketing, exports or imports of the commodity therefore the market forces determine the
prices. Guar being export oriented commodity its price behavior in domestic marke
largely determined by the overseas demand of guar products. And since the guar products
demand is largely dependent on the number of oil drilling rigs, the domestic guar prices are
indirectly linked to the crude oil prices, as higher crude oil prices leads to higher drilling
activities, which in turn increases the expectations of higher demand for guar gum and guar
There is quite a bit of co-movement between the crude oil prices and guar gum and
seen from the following chart.
Movement of Guar seed, Guar Gum and Crude Oil Prices
22
There are no Government rules and regulations governing the production, distribution,
marketing, exports or imports of the commodity therefore the market forces determine the
prices. Guar being export oriented commodity its price behavior in domestic market is
largely determined by the overseas demand of guar products. And since the guar products
demand is largely dependent on the number of oil drilling rigs, the domestic guar prices are
leads to higher drilling
activities, which in turn increases the expectations of higher demand for guar gum and guar
between the crude oil prices and guar gum and
Movement of Guar seed, Guar Gum and Crude Oil Prices
23
The first four months of the 2011 provides a good insight about the correlation between the
crude prices and the guar gum and guar seed prices (Figure 11). Guar seed prices and guar
gum prices has reached a record level breaching Rs. 3000 per quintal mark and Rs. 8000
per quintal mark respectively, in the beginning of the 2011, while the crude oil prices has
touched a two year high level, breaching the $100 a barrel mark. Oil companies are
responding to recently elevated oil prices. Many are in fact scrambling to find and produce
more oil. Oil company giants are planning to spend nearly half-trillion dollars in 2011 to find
and extract oil and natural gas in order to take the advantage of higher oil prices, according
to a new survey by investment bank Barclays Capital.
Oil-directed rigs broke record in the second week of March 2011, with a number of them
working in the US than at any time in the previous nearly 24 years. The oil rig count only
broke 800 less than two months ago for the first time in 24 years. The driver here is
continued high and still skyrocketing oil prices in the early 2011. In all, the higher oil drilling
activities has led to the expectations of higher guar gum demand owing to an increase in
the demand from the oil sectors, which drove the guar gum prices to a record high level.
The guar gum prices and guar seed prices have escalated by 48.44% and 9.34%,
respectively in the year till date. While the oil prices have edged up by 24.67% in the year
till date.
According to the latest figures provided by Agriculture and Processed Food Products Export
Development Authority (APEDA), so far India’s guar gum exports for the period April-
December 2010 surged 82% to 279,197 tonnes as compared to 153,404 tonnes recorded
during the same period last year, as a result of which market participants are further
anticipating an increase in the guar gum demand, leading to an constant uptrend in the
guar seed and guar gum prices.
Price of any commodity is determined by the interaction of supply and demand. Market price
is dependent upon both of these fundamental market forces. Apart from the demand factor,
a huge fluctuation in domestic production of guar seed also affects the prices to a great
extent. Though broadly on a long term basis the guar prices depend on the international
demand scenario, the supply of the guar seed depends upon the monsoon season.
Therefore, the production of the guar seed also plays a major role in the movement in the
guar prices. Since guar seed is a rain fed crop the prices of guar fluctuate at times mainly
due to volatility in its production which is heavily dependent upon monsoon. Rainfall and
prices have a negative correlation as produc
the guar crop is largely a rainfed crop.
Figure 12: Correlation Between Guar Seed Production And Guar Gum And Guar
In the medium term, guar seed and guar gum prices
and August. As in July-August the sowing takes place. Higher sowing activities
market’s bearish about the prices
decline, it turns bullish for the prices
monsoon season. While after sowing, before the harvest periods if the monsoon season
turns unfavorable before the harvesting period than it leads to an anticipation of reduced
output acting bullish for the guar prices, while if the monsoon seasons turns favorable,
prices generally turns lower.
November, which once again
(Figure 13)
prices have a negative correlation as production is largely dependent on the rainfall given
the guar crop is largely a rainfed crop.
: Correlation Between Guar Seed Production And Guar Gum And Guar
Seed Prices
Source: NCDEX, CMIE
In the medium term, guar seed and guar gum prices fluctuates mostly in the months of July
August the sowing takes place. Higher sowing activities
prices; on the other hand if the sowing activities witness a
decline, it turns bullish for the prices. And the sowing activities completely depend on the
monsoon season. While after sowing, before the harvest periods if the monsoon season
turns unfavorable before the harvesting period than it leads to an anticipation of reduced
he guar prices, while if the monsoon seasons turns favorable,
prices generally turns lower. Arrivals generally happen in the months
November, which once again leads to price volatility of the guar gum futures
24
tion is largely dependent on the rainfall given
: Correlation Between Guar Seed Production And Guar Gum And Guar
fluctuates mostly in the months of July
August the sowing takes place. Higher sowing activities make the
if the sowing activities witness a
. And the sowing activities completely depend on the
monsoon season. While after sowing, before the harvest periods if the monsoon season
turns unfavorable before the harvesting period than it leads to an anticipation of reduced
he guar prices, while if the monsoon seasons turns favorable,
of October and
of the guar gum futures contracts.
Figur
Source: NCDEX
With the demand for guar and its products increasing with each passing year, the supply of
guar seed has not increased at the same pace. The average production of Guar seed in the
country is 10-11 lakh MT and fluctuates largely from year
If we glance through the beginning of the 2011, one can notice that besides higher overseas
demand, low carryover stock also led to the rise in the price of the guar seed and guar gum
prices in the first four months of 2011. The carryover stock of guar gum had reached a
record low level for the current year, which has trigger prices to shoot up further. For the
year 2010/11 stock are expected to fall below 20 lac bags which lowest endi
entire decade. The stock are expected to decline to below 20 lac bags from 34 lac bags in
2009/10 and as high as 65 lac bags in 2008/09.
Figure 13: Guar Seed Price Volatility
With the demand for guar and its products increasing with each passing year, the supply of
guar seed has not increased at the same pace. The average production of Guar seed in the
MT and fluctuates largely from year-to-year based on rainfall pattern.
If we glance through the beginning of the 2011, one can notice that besides higher overseas
demand, low carryover stock also led to the rise in the price of the guar seed and guar gum
prices in the first four months of 2011. The carryover stock of guar gum had reached a
record low level for the current year, which has trigger prices to shoot up further. For the
year 2010/11 stock are expected to fall below 20 lac bags which lowest endi
entire decade. The stock are expected to decline to below 20 lac bags from 34 lac bags in
2009/10 and as high as 65 lac bags in 2008/09.
25
With the demand for guar and its products increasing with each passing year, the supply of
guar seed has not increased at the same pace. The average production of Guar seed in the
year based on rainfall pattern.
If we glance through the beginning of the 2011, one can notice that besides higher overseas
demand, low carryover stock also led to the rise in the price of the guar seed and guar gum
prices in the first four months of 2011. The carryover stock of guar gum had reached a
record low level for the current year, which has trigger prices to shoot up further. For the
year 2010/11 stock are expected to fall below 20 lac bags which lowest ending stock in the
entire decade. The stock are expected to decline to below 20 lac bags from 34 lac bags in
26
Table 4: Supply Demand Scenario
2004/0
5
2005/0
6
2006/0
7
2007/0
8
2008/0
9
2009/1
0
2010/11
E
Production 48 60 73 110 85 40 90
Carry In 75 63.96 44.88 40.7 70.7 65.7 24.7
Total
supplies
123 123.96 112.88 145.7 155.7 105.7 104.7
Exports 53.04 72.08 69.18 72 82 73 93
Local
Consumptio
n
6 7 8 8 8 8 8
Ending
Stocks
63.96 44.88 40.7 70.7 65.7 24.7 19
Source: NB Research, APEDA
Therefore, the estimated production, carry forward stock and demand play the major role in
the determination of the prices leading to huge volatility in its prices. The prices can
sometime stay stable and then rise or fall abruptly.
Outlook
Looking forward, or the year 2010-2011, the guar seed production is expected to remain
good, as the India Meteorological Department has forecast a near-normal monsoon, well
supported by even distribution of pre-monsoon showers in almost all states, which has
enthused farmers to undertake more sowing. The Met department’s long range forecast for
the 2011 south-west monsoon season (June to September) is that the rainfall for the
country as a whole is most likely to be Normal (96-104% of Long Period Average (IPA)).
There is very low probability for season rainfall to be deficient (below 90% of LPA) or excess
(above 110% of LPA). Preliminary reports suggest a higher acreage area under the crop so
far this year. Nevertheless, even if the monsoon remains normal in June, much would
depend upon the overall rainfall in July, which is the plant's germination stage. According to
the Rajasthan farm Department, Guar seed output in Rajasthan in the current season is
estimated at 14.9 lakh tonnes. The forecasted Indian output this year is much higher than
the 10 lakh tonnes of 2009-10 and 13 lakh tonnes in 2008-09.
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Table 5: Cluster bean scenario In Rajasthan
Year AREA
(thousand
ha)
Production
(thousand
tones)
Productivity
(kg/ha)
2006-07 2809 658 234
2007-08 2910 1243 427
2008-09 3316 1261 380
2009-10 2581 201 230
2010-11 2952 1488 504
Average (2006-10) 2914 970 355
Average (2001-05) 12011 589 244
%
Increase/Decrease
Over 2001-05
44.9 64.68 45.49
Source: Rajasthan Krishi [government of Rajasthan]
Lower production of Guar in the previous year has led higher demand of guar from stockists
as they are going for additional stocking of the produce till the fresh arrivals in the month of
October and November.
Guar gum exports from India are expected to be quite good in the current year amid robust
demand from oil producing countries, with the rise in crude oil prices. Meanwhile, lower
supplies from Pakistan, the second largest guar producing country next only to India, will
push up guar gum exports from the country. The export from Pakistan declined as the crop
got destroyed due to floods last season. Nonetheless, even if the crude oil prices witnesses
some downtrend, the guar gum exports are likely to remain strong, especially from US, if
there is an increase in its oil drilling activities The demand of guar gum from the US food
processing industry is also seen strong. US Food & Drug Administration department has
approved guar as a replacement to fats in food.
The commercialization of guar seed and its derivative has acted has expanded the exports
basket of the Indian economy and farmer’s economy and role thereby augmenting to a
source of foreign exchange earnings. Despite the importance of this crop the supply of guar
28
seed still faces some constraints, as it is largely grown in rain fed areas with extremely low
rainfall; therefore productivity is low and production entirely dependent on rainfall. More
research on improving the yield of the guar crop is needed. Only one research station,
namely Agricultural Research station, Bahawalpur in whole of the country is conducting
research on guar since 1984. Since then, only three varieties i.e. 2/1, BR-90 and BR-99
have been developed for fodder purpose. The varieties for seed purpose don’t exist.
Therefore, these is a dire need to strengthen the research on guar to develop such varieties
which are not only higher yielder in terms of seed but also process the higher gum and
protein contents. Guar producers need to be assured of good and reasonable prices of guar
so that it acts as an incentive to increase its production by providing remunerative return to
the guar producers.
References:
Directorate General of Foreign Trade (DGFT)
Centre for Monitoring Indian Economy (CMIE)
Agricultural & Processed Food Products Export Development Authority (APEDA)
National Commodity Derivative Exchange (NCDEX) Business Line Export – Import Bank Of India Rajasthan Krishi [Government of Rajasthan] US Energy Information Administration (EIA)
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