“mapping the market thought” approach for forecasting maize prices

“Mapping the Market Thought” Approach for forecasting Maize

Prices

Brands

THE INDIA MAIZE SUMMIT’13

Mar 22nd 2013

Mr. Nagaraj MedaManaging Director

TransGraph consulting Pvt.ltd

© TransGraph Consulting Pvt Ltd Slide

We have a great principle of accommodation which maximizes the utility of various inputs that are available. That is….

Mapping the market thought

Mapping the market thought


India’s Rabi Crop Sowing Details

• Major changes in Rabi crops sowing are:– Delayed sowing in majority of the regions– Rice acreage diverted towards other lucrative crops– Increase in acreage under Coarse Cereals due to water scarcity– Among coarse cereals Sorghum accounts higher acreage share and

followed by Maize

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India’s Rabi Maize Production Scenario

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India's Rabi Maize Production Projections for 2012-13 (Million tons)

States 2011-12 2012-13 p A.P. 2.22 3.17 Bihar 1.29 1.54 Karnataka 0.33 0.29 Maharashtra 0.29 0.29 TN 1.04 1.08 Others 0.32 0.35 All India 5.49 6.31


Andhra Pradesh Rabi Maize Status

• Acreage under maize in AP considerably increased in Telangana region owing to varied reasons:

• Fall in reservoir levels - shifted irrigated rice towards irrigated maize (2.17 Lakh ha of rice shifted towards other lucrative crops like maize, groundnut and pulses crops.

• Higher price realization for Kharif maize (Kharif maize price at Nizmabad for Aug’12 to Dec’12 stood at INR 1400 per quintal

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Coastal AP Maize Sowing Dynamics

• Rabi maize acreage in coastal region increased by 3.74% and major contribution is from Prakasam and West Godavari.

• Farmers at E. Godavari and Vishak Patnam farmers have increased acreage under Rice (and reduced maize) due higher rains in the region (31% and 19% departure respectively).

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Rabi-2012-13 Maize Production Details

• Andhra Pradesh received normal rainfall for the current year.• With frequent showers, maize yields are likely to increase by 12.50% over last

year towards 7.65 tons per ha.• In overall, we can expect AP maize production to stand at 3.17 million tons,

which is up by 43% over last year.• % contribution of AP to India’s total Rabi maize production is likely to

increase by 50%.

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All India Expected commencement of arrivals

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• Combined with late Kharif harvest as well as variation in arrival of post monsoon rains, Rabi maize sowing postponed from its normal date.

• Therefore, peak arrivals are expected to commence from 3rd week of March or First week of Apr’13.


Likely flow of Maize to Karnataka and Maharashtra from AP

Unfavorable Monsoon rains led to-• Karnataka Kharif maize production declined by 5.3% due to

decline in harvested acreage and yield rate even though sown acreage was normal/higher.

• Same in Maharashtra production declined by 2% due to decline in yield rate as well harvested acreage.

• Therefore, we anticipate there will be higher quantity of maize from AP towards Karnataka and Maharashtra.

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Indian Maize Export Dynamics

• Indian maize exports for the three quarters of 2012-13 stood at 3.05 million tons and another 0.7 to 0.8 million ton exports are anticipated in 4Q of 2012-13. (around total 3.85 million tons)

• Currently, Indian Maize FOB prices quoted at $278-290 per ton while US corn is costlier by $20-32 per ton ($310-316 per ton).

• In the last couple week, Indian maize shipments for a quantity of 94,500 tons happened to the countries like China, Vietnam, Indonesia etc.

• Maize starch exports have took place at price of INR 25.2 per kg during the week for a quantity of 90tons to Nigeria.

• Looking ahead, nearly 4.5-5 million tons of exports are projected for FY 13-14 owing to higher demand from S. E Asian countries.– Projected higher Rabi maize output in India– Prevailing global tight supply condition for corn– Globally, nearly 13% decline in carryover stocks for 2012-13– Declined US production for 2012-13– Nearly 6% decline in global wheat output

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Global Happenings

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Drought in US Decline in sown and harvested US corn crop

Tight Supplies of Corn globally

Last year S. American corn affected by drought and lower

stocks with them

Higher prices for soymeal and feed demand

Higher Prices for US Corn(High of 845 cents/bu on 10th Aug’12 )

Declined demand from ethanol producer on lack of margin due to higher corn prices

Shift of livestock/poultry feed users to wheat rations

Lack of export demand due to higher prices and tough competition

with South America and Ukraine

Estimates for higher corn production from South America

Estimates for higher corn production from US in 2013-14

Improving weather condition in US

Current US corn export price $310-315 per ton

Medium term Price Impact


US Corn Situation

• Tight US Corn supply in “old crop” 2012-13• Large US Corn crop estimates for 2013-14

• S. America is likely to be price driver for 2013

Attributes 2011-12 2012-13 E 2013-14 F %change Planted Area (mil acre) 91.9 97.2 96.5 -1 Harvested Area (mil acre) 84 87.4 88.8 2 Yield (bu/Ac) 147.2 123.4 163.6 33 Beginning stocks (mil ton) 28.6 25 16 -36 Production (mil ton) 313 273 367 35 Imports (mil ton) 0.7 2.5 0.6 -75 Total Supply (mil ton) 342.2 300.5 384.5 28 Feed, Residual 115.1 112.7 136.7 21 Food, Seed 163 149 154.7 4 Ethanol 126.9 113.9 118.4 4 Total Domestic use (mil ton) 278.1 261.7 291.4 11 Exports (mil ton) 39.1 22.8 38 67 Total use (mil ton) 317.9 284.5 329.4 16 End Stocks (mil ton) 25 16 53.6 235 Avg. farm price ($/bu) 6.22 7.2 4.8 -33


Country-wise Corn Market Dynamics

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• Competition for corn exports is only expected to increase, as Brazil begins exporting more corn and Ukraine continues its exports.

• Argentina and Brazil corn production to stand at 27.5 mil ton (+27% y/y) and 72.5 mil ton (+0.7% y/y) respectively.

• Argentina and Brazil are anticipated to hit the markets based on weather/ moisture content of the grains and logistics status.

• Ukraine has exported near 10 million tons of corn in the 2012/2013 marketing year.

• Global total grains supply (production+ carry in stocks) for 2012-13 is decline by 3% y/y to 2146.3 million tons.

• Higher food (+0.7%) and decline in industrial (-2.3% y/y) and feed consumption (-2.65% y/y), in total these put ending stocks down by 11% y/y.


CBOT Corn Futures Trend

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CBOT Futures Forward Curve

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CBOT Futures Forward Curve indicates lower prices for Sep’13 contracts which are near 590 cents/bushel against 729 cents/bushel of current price and same indicates current market expectations of higher production for 2013-14 season


Global Corn:CME Corn Futures., Cents/bushel

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Maize Nizamabad Spot, INR/Qtl.

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Price Outlook- Maize

Market & current price JFM’2013 AMJ ’13 JAS ’13 OND’13 JFM’14

Maize/ Corn (INR 1320/qtl) as on 21st Mar’13

High 1360 1350 1400 1300 1400Low 1250 1300 1350 1200 1300Avg. 1300 1325 1375 1275 1350

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Maize Risk Environment

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Price Risk

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Industry pain point Challenge Impact How to address?

Price Risk

• Challenge to deal with unanticipated price changes

• Difficulty in securing long term contracts

Impact on entire value chain

• Farmers’ income • Sharp Changes in

acreages • P&L impact for

businesses• Supply adjustment

to prices

Can mitigate risk by proper use of hedging mechanism:Physical and financial hedging Long term tie ups


Volatility in Maize Prices

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3/1/20115/1/20117/1/201111/1/201113/01/201117/01/201119/01/201121/01/201125/01/201127/01/201131/01/20112/2/20114/2/20118/2/201110/2/201114/02/201116/02/201118/02/201122/02/201124/02/201128/02/20112/3/20114/3/20118/3/201110/3/201114/03/201116/03/201118/03/201122/03/201124/03/201128/03/201130/03/20111/4/20115/4/20117/4/201111/4/201113/04/201115/04/201119/04/201121/04/201125/04/201127/04/201129/04/20113/5/20115/5/20119/5/201111/5/201113/05/201117/05/201119/05/201123/05/201125/05/201127/05/201131/05/20112/6/20116/6/20118/6/201110/6/201114/06/201116/06/201120/06/201122/06/201124/06/201128/06/201130/06/20114/7/20116/7/20118/7/201112/7/201114/07/201118/07/201120/07/201122/07/201126/07/201128/07/20111/8/20113/8/20115/8/20119/8/201111/8/201115/08/201117/08/201119/08/201123/08/201125/08/201129/08/201131/08/20112/9/20116/9/20118/9/201112/9/201114/09/201116/09/201120/09/201122/09/201126/09/201128/09/201130/09/20114/10/20116/10/201110/10/201112/10/201114/10/201118/10/201120/10/201124/10/201126/10/201128/10/20111/11/20113/11/20117/11/20119/11/201111/11/201115/11/201117/11/201121/11/201123/11/201125/11/201129/11/20111/12/20115/12/20117/12/20119/12/201113/12/201115/12/201119/12/201121/12/201123/12/201127/12/201129/12/20112/1/20124/1/20126/1/201210/1/201212/1/201216/01/201218/01/201220/01/201224/01/201226/01/201230/01/20121/2/20123/2/20127/2/20129/2/201213/02/201215/02/201217/02/201221/02/201223/02/201227/02/201229/02/20122/3/20126/3/20128/3/201212/3/201214/03/201216/03/201220/03/201222/03/201226/03/201228/03/201230/03/20123/4/20125/4/20129/4/201211/4/201213/04/201217/04/201219/04/201223/04/201225/04/201227/04/20121/5/20123/5/20127/5/20129/5/201211/5/201215/05/201217/05/201221/05/201223/05/201225/05/201229/05/201231/05/20124/6/20126/6/20128/6/201212/6/201214/06/201218/06/201220/06/201222/06/201226/06/201228/06/20122/7/20124/7/20126/7/201210/7/201212/7/201216/07/201218/07/201220/07/201224/07/201226/07/201230/07/20121/8/20123/8/20127/8/20129/8/201213/08/201215/08/201217/08/201221/08/201223/08/201227/08/201229/08/201231/08/20124/9/20126/9/201210/9/201212/9/201214/09/201218/09/201220/09/201224/09/201226/09/201228/09/20122/10/20124/10/20128/10/201210/10/201212/10/201216/10/201218/10/201222/10/201224/10/201226/10/201230/10/20121/11/20125/11/20127/11/20129/11/201213/11/201215/11/201219/11/201221/11/201223/11/201227/11/201229/11/20123/12/20125/12/20127/12/201211/12/201213/12/201217/12/201219/12/201221/12/201225/12/201227/12/201231/12/20122/1/20134/1/20138/1/201310/1/201314/01/201316/01/201318/01/201322/01/201324/01/201328/01/201330/01/20131/2/20135/2/20137/2/201311/2/201313/02/201315/02/201319/02/201321/02/201325/02/201327/02/20131/3/20135/3/20137/3/201311/3/201313/03/201315/03/20130.00

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NCDEX Futures Cont.Nizamabad Spot MarketCBOT Corn

Maize Price Volatility (%Daily)


Maize Price Avar

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3/1/20115/1/20117/1/201111/1/201113/01/201117/01/201119/01/201121/01/201125/01/201127/01/201131/01/20112/2/20114/2/20118/2/201110/2/201114/02/201116/02/201118/02/201122/02/201124/02/201128/02/20112/3/20114/3/20118/3/201110/3/201114/03/201116/03/201118/03/201122/03/201124/03/201128/03/201130/03/20111/4/20115/4/20117/4/201111/4/201113/04/201115/04/201119/04/201121/04/201125/04/201127/04/201129/04/20113/5/20115/5/20119/5/201111/5/201113/05/201117/05/201119/05/201123/05/201125/05/201127/05/201131/05/20112/6/20116/6/20118/6/201110/6/201114/06/201116/06/201120/06/201122/06/201124/06/201128/06/201130/06/20114/7/20116/7/20118/7/201112/7/201114/07/201118/07/201120/07/201122/07/201126/07/201128/07/20111/8/20113/8/20115/8/20119/8/201111/8/201115/08/201117/08/201119/08/201123/08/201125/08/201129/08/201131/08/20112/9/20116/9/20118/9/201112/9/201114/09/201116/09/201120/09/201122/09/201126/09/201128/09/201130/09/20114/10/20116/10/201110/10/201112/10/201114/10/201118/10/201120/10/201124/10/201126/10/201128/10/20111/11/20113/11/20117/11/20119/11/201111/11/201115/11/201117/11/201121/11/201123/11/201125/11/201129/11/20111/12/20115/12/20117/12/20119/12/201113/12/201115/12/201119/12/201121/12/201123/12/201127/12/201129/12/20112/1/20124/1/20126/1/201210/1/201212/1/201216/01/201218/01/201220/01/201224/01/201226/01/201230/01/20121/2/20123/2/20127/2/20129/2/201213/02/201215/02/201217/02/201221/02/201223/02/201227/02/201229/02/20122/3/20126/3/20128/3/201212/3/201214/03/201216/03/201220/03/201222/03/201226/03/201228/03/201230/03/20123/4/20125/4/20129/4/201211/4/201213/04/201217/04/201219/04/201223/04/201225/04/201227/04/20121/5/20123/5/20127/5/20129/5/201211/5/201215/05/201217/05/201221/05/201223/05/201225/05/201229/05/201231/05/20124/6/20126/6/20128/6/201212/6/201214/06/201218/06/201220/06/201222/06/201226/06/201228/06/20122/7/20124/7/20126/7/201210/7/201212/7/201216/07/201218/07/201220/07/201224/07/201226/07/201230/07/20121/8/20123/8/20127/8/20129/8/201213/08/201215/08/201217/08/201221/08/201223/08/201227/08/201229/08/201231/08/20124/9/20126/9/201210/9/201212/9/201214/09/201218/09/201220/09/201224/09/201226/09/201228/09/20122/10/20124/10/20128/10/201210/10/201212/10/201216/10/201218/10/201222/10/201224/10/201226/10/201230/10/20121/11/20125/11/20127/11/20129/11/201213/11/201215/11/201219/11/201221/11/201223/11/201227/11/201229/11/20123/12/20125/12/20127/12/201211/12/201213/12/201217/12/201219/12/201221/12/201225/12/201227/12/201231/12/20122/1/20134/1/20138/1/201310/1/201314/01/201316/01/201318/01/201322/01/201324/01/201328/01/201330/01/20131/2/20135/2/20137/2/201311/2/201313/02/201315/02/201319/02/201321/02/201325/02/201327/02/20131/3/20135/3/20137/3/201311/3/201313/03/201315/03/20130

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NCDEX Futures Cont.Nizamabad Spot MarketCBOT Corn

Daily Avar for Maize Price (USD/ton )


Basis – NCDEX Future prices – Nizamabad spot

• Basis turns positive before new arrivals begin to markets• Making strategies for purchase and sale by tracking basis movement

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Futures spread between contracts

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Production Risk

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Pain Point Challenge Impact How to address?

Production Risk

• Weather• Input availability &

prices of inputs• Competitive crops

and price realization • Crop holding Size• Quality damage

Impact at each point in value chain

• Volatility in supplies

• Lack of quality material availability

• Price volatility• Crop diversion• Shift to

alternatives

Timely Decision making:Irrigation; improved early warning systems; & adoption of better agronomic practices;Contract Farming;Warehousing;Weather Insurance;Buffer stocks/reserves.


Demand side Risk

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Demand side Risk

• Changing habits of end consumers -Faster adoption

• Availability of Alternatives and price fluctuations

• Export market behavior for Maize and products

• Impact on revenues

• Time taken to adjust to new set of demands / markets

Analysis /updated market demand dynamics and staying ahead of the curve

Demand for industrial products- Starches, LG, Polyols (like Sorbitol, Mannitol) – increasing in double digits along with rising FMCG sector growth.


Global Environment

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Global Environment

• Increasingly, Indian and global prices more correlated

• Global shortfalls leading to sharp rise in domestic prices

• Diverged impact for trading companies and domestic consuming industries

• More value addition at domestic level and improving the overall domestic Maize economy


Policy Risk

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Industry pain point Challenge Impact How to address?

Policy risk

• Unexpected Government intervention

• Ex. Export ban • State-wise different tax

structures/policies, impacting logistics

• Impact on planning infrastructure establishment/capital

• Impact on traders- likely sudden loss of export/import opportunity

• Very little alternatives available

• Unison of all the stakeholders for commonly acceptable policies

• Approach towards a more free-market maize-economy


Critical Risk Drivers for Industry

Critical pain points for stake holders in Maize Value Chain:

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Production-supply side concerns

Market-demand side concerns

Enabling Environment-policy interventions

Price Fluctuations

Volatility

Budget Deviation

Global Environment

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Thanking you for your attention.

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