A sustained fall in the price of guar seed and its derivative, guar gum, has put the BSE-listed Vikas WSP in a tight spot, with its share price down 73 per cent.
There has been a surge in sowing and, therefore, in expected output; prices have, accordingly, slid. In April, at the beginning of the sowing season, Vikas had distributed around 100,000 bags (a quintal each) of guar seed to farmers and invited them to sow this cattlefeed, for which the company guaranteed a minimum assured purchase price of Rs 50 a kg. “We are committed to procure at that price, irrespective of price movement during the harvesting season. We would commence procurement from November 1 at Rs 50 a kg,” said Jitendra Jindal, vice-president of Vikas. Efforts to reach B D Agarwal, the managing director, were not successful.
The price of guar seed has halved in 10 weeks, to below Rs 42 a kg. The commodity for delivery in October was traded at Rs 42.10 a kg, while that of November and December delivery was quoted at Rs 41.3 a kg and Rs 41.70 a kg on the National Commodity & Derivatives Exchange. Guar gum contracts for delivery in October, November and December were traded at Rs 116.8 a kg, Rs 115.0 a kg and Rs 116.4 a kg, respectively.
“2012 was an exceptional year for guar seed and gum, which saw the price hitting Rs 330 a kg and Rs 1,000 a kg, respectively. Looking at this price level, farmers shifted aggressively from bajra and moth to guar seed this season. Consequently, sowing area and output are expected to rise this season by 150 per cent at least,” said Purushottam Isaria, president of the All India Guar Gum Manufacturers Association.
The favourable monsoon rain has helped. The Rajasthan Agriculture Board recently said the total sowing area of guar seed almost doubled at 817,000 hectares as on July 15 as against 475,000 ha on the same date last year.
“While the seed price might plunge below Rs 40 a kg, gum will see below Rs 110 a kg in the peak harvesting season,” said Prerana Desai, vice-president, Kotak Commodity Services.
Jindal says the company is thinking long term. Guar gum demand has been robust from abroad, especially from America, due to the shale gas boom (guar is a key constituent in this mode of production). And, “a high guar seed price to farmers this year will guarantee supply assurance from them for the future. Hence, the one-time hit on raw material price might be compensated later,” he said.
-Business Standard dtd 01 Aug 2013
What rate guar seeds will be in Feb 2013 is like speculating in the stock market. It will be better to play safe as more and more land is going to be under guar in almost all the states of India there will be pressure to sell the produce as large no. of stocks arrive in the market next year. Assuming guar finds support at Rs. 5000 and resistance at Rs. 6000 and above, it will be safe to assume guar produce will fetch Rs. 4500 at the farm gate in the South. With no guar market or guar gum manufacturer in south, transportation costs will be added burden.
At this rate an acre of guar will fetch income of Rs. 22500 for the farmer. Deducting cultivation and harvesting costs at an average of Rs. 10,000, this will fetch a profit of Rs. 12,500 which is a good profit provided:
1. Farmers having land with limited irrigation unsuitable for other cash crops.
2. Farmers are having large land holding and are keeping it vacant due to labour shortage.
3. Rain fed lands with no irrigation facility (but during harvesting rain must cease completely)
4. Farmers who want assured income and less risks.
Hence you can provide a MSP of Rs. 4500 to your farmers to be on the safe side. Anything above (market rate) will be an added bonus to you and you can pass on the benefit to the farmers as per the market rate.
You must also talk before hand to some of the top guar gum manufacturers for selling your produce. One of them is Vikas WSP in Rajasthan who have provided free seeds to the farmers and assured an MSP of Rs. 5000 to the farmers. But their top priority will be to buy back seeds from these farmers in the guar producing districts of Rajasthan and then look for buying guar in other states depending on the demand at that point of time.
Of course this is a pessimistic approach but better be safe than sorry.
-J.P.