Archive for June 3rd, 2010

BARLEY…. “CLOCKING WITH VOLUMES”

When analyzing a particular commodity, it is very important to attempt to identify the “leader finished product” of that commodity which would drive the prices of the raw material and provide the most impressive investor returns. Here, in this column, illustrating some of the features of barley and the potential of barley futures which has directly or indirectly entered into the new luxury segment of malt industry & distilleries evolving within premium Indian brands.

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DEMAND COMING IN FROM…

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Demand from the distilleries and malt industries have always supported the barley market. Out of the total output, around 70 per cent goes to the malt industries which use it for beer making. The rest is used mostly as cattle feed. Major malt industries are located in and around the National Capital Territory (Delhi) in Haryana, Uttar Pradesh and Rajasthan.

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However, the facing a competition from Ukraine and Uzbekistan (the main competitors of India in barley production) where its availability is at cheaper rates, barley procurement by different companies has been slowed down from the Indian markets.

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The grain commodity has also taken supportive cues from the rising rates of other grains such as maize, jowar, bajra and guarseed. Another factor, which may contribute in rise of barley prices is the higher rates of molasses from the sugarcane industry. Apart from these consuming industries, poultry is another big consumer of barley in the country.

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EVOLVING MARKETS

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Keeping in mind the growth & design to meet the growing demand from the European Malting Barley sector, NYSE Liffe, the Europe-based derivatives business of NYSE Euronext (NYX), has launched Malting Barley futures and options on 10 May 2010, which will encompass Malting Barley from any European origin in a 50-tonnes lot size. It is unique in being the only market available worldwide to meet the specific hedging requirements of maltsters, brewers and distillers as well as those engaged in the production and trade of Malting Barley.

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CROP PROSPECTS

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Area under barley in India is stagnant near to 1600 metric tonnes, whereas the yield is expected to lower down to 2.03 metric tonnes per hectare in 2010-11 as compared to 2.17 in the year 2009-10. Rajasthan, Punjab, Haryana, Uttar Pradesh and Madhya Pradesh are the main barley producing states in the country.

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As per the latest released by Canadian Wheat Board, global barley production in 2010-11 is at 138 million metric tonnes, down from 144 million tonnes the previous year. The global malting barley import demand would increase slightly, to 4.46 million tonnes in 2010-11, from 4.36 million. The stocks will remain more than sufficient to meet the demand.

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FUTURES & SPOT UPDATE

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Travelling through a volatile path, with lots of upside & down, barley prices have managed to gain profits at 15.68% to Rs 1,040 per quintal in spot market (NCDEX) & by 22.24% to Rs. 1100 per quintal in the futures trade following increased positions by the investors. Tracking the spot & futures prices, it has been seen that from the beginning of month of April, with summer temperatures soaring, prices of barley heats up. There is a huge surge in the trading volumes. Last year volume in the same quarter was at about 16,160, whereas it has now clocked to 82,470 quintal.

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Taking into consideration, of increasing procurement by consuming industries & brewing industry operating at their full capacity during this period of summer, an investor can buy barley before the commencement of summer season during the harvesting period around March and April & accumulate till the month of June for getting decent returns on investment.

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In recent days, the barley futures (NCDEX June contract) have shown a breakout above its weekly resistance of 1080 levels, trading at 1108/quintal, depicting & apprehending that prices may remain stronger with an upside target of 1120 in medium term, & downside is likely to be restricted at 1020 levels, supported by continuous pipeline demand from the consuming industries.

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The fact brewing industry growing at 15-18 per cent a year, & increasing stock-touse ratio, barley cultivation is slated to become the next big opportunity.