Jeera futures cross Rs 50,000 mark for first time: Key fundamentals driving the commodity

The jeera futures market experienced a significant milestone so far in June 2023, with prices surpassing the Rs 50,000 level on the National Commodity and Derivatives Exchange (NCDEX) for the first time ever and reaching a high of 50,250. Prices for the spice have climbed by nearly 140 per cent over the past year, on the back of tightened supply and heightened demand. 

The spice is currently trading higher than its 10, 50, 100, and 200-day moving averages. The Relative Strength Index (RSI) of the jeera is at 76.344, which indicates that the futures of the spice are currently overbought. 

Factors influencing the spike

Primarily, the production of jeera in India has seen a significant drop during the 2022-23 season due to adverse weather conditions and pest infestations, especially in the key producing regions of Gujarat and Rajasthan. These areas account for 90 per cent of India's total jeera production, and a 15 per cent decrease in their output has led to tightened market conditions.

"Lower crop production, limited stocks, and robust domestic as well as export demand have combined to exert upward pressure on Jeera prices," Sugandha Sachdeva, Executive Director and Chief Strategist at Acme Investment Advisors told Zeebiz.com. She attributes a significant portion of the reduced crop yield to unseasonal rains in Rajasthan in March 2023, which has primarily impacted the crop.

In addition, a mismatch between demand and supply in the domestic Indian market, primarily due to the unfavourable crop yield this year, has been a significant factor. Torrential rains in January and February have severely impacted the jeera crop, further intensifying the scarcity. The reduced availability is apparent from the 25 per cent drop in jeera arrivals between February and June 2023 compared to the previous year. 

"Jeera production for the crop year 2023-2024 is estimated to be lower by around 8-12 per cent at 65 lakh bags, compared to the initial estimate of 75 lakh bags (1 bag= 50Kgs.)," Sachdeva added. This lower-than-expected yield comes in the wake of a similarly reduced production in the previous year, which saw a production of 66 lakh bags compared to 85-80 lakh bags in the crop year 2021-22.

However, the Government of India's third advance estimate maintains the Jeera crop at about 40 lakh bags (2,00,798 tonnes) for the crop year 2023-2024.

Moreover, on the demand side, Indian jeera exports from January to April 2023 have seen an 8 per cent increase compared to the same period last year, amounting to 54,245.88 tonnes. The enhanced demand from major importers such as China, Bangladesh, Sri Lanka, and the Middle East, when juxtaposed with restricted supply, has catalyzed the ascension in prices.There is also a strain in global jeera due to a decrease in production in Syria and Turkey after the February earthquake, two major exporters. 

"As a result, there is a significant gap between demand and supply, pushing prices on a higher trajectory," explained Sachdeva.

Market dynamics

The skyrocketing prices have triggered a flurry of activity in the futures market, with trading volumes increasing as market players try to profit from the price volatility. However, this also comes with heightened risk due to the record-high price levels.

Looking forward, Sachdeva foresees a potential continuation of this upward trend, but with a note of caution. "Prices might maintain an upwards trend in the near-term, only if they manage to surpass Rs 50,000 per quintal comfortably, where prices can test Rs 53,000 per quintal. Else, a correction is likely to set in."

Sachdeva further cautioned of the vulnerability of the current prices. "Given the steep advance, prices are prone to correction as there can be demand erosion at such elevated levels and the possibility of government intervention," she noted. She also highlighted potential profit booking at higher levels due to emerging concerns about the imposition of higher margins from the exchanges.