Guar prices due for correction

Fundamental Analysis

Guar futures rose sharply during the last few sessions on the reports of drop in acreage under Guar due to a poor monsoon in Northwest India where most of the Guar crop is grown. However, prices witness some profit booking on Thursday.

Sowing of Guar has started across Rajasthan; however, the pace is very slow. According to the top official, there is a drop of 75% in the area sown under Guar due to poor monsoon.

According to IMD, monsoon was below 50% of the Long Period Average during the period 1st June- 9th July.

Sowing of Guari, which normally takes place between 15th of May and continues till Mid June was delayed this year. Also, drastic fall in acreage under Guari has been witnessed across North Rajasthan.

Also, MET department has predicted that the monsoon in the Northwest part of India (which is the main Guar belt) is only 83% which will affect the output of guar in the coming season.

Technical Analysis

Guar prices (NCDEX August) settled at Rs. 1,956 per qtl, lower as compared to Wednesday’s close of Rs. 1,976.

RSI is at 68.93 and towards overbought region. Prices closed above its 5 days 20 days SMA and 65 days SMA indicating an up trend.

Outlook

IMD will release its “Monsoon 2009: current status” today. This will decide the further trend in the coming weeks. We expect prices to take some corrections in the first half of the trading session. However, prices may recover thereafter due to strong fundamentals. Guar prices are expected to remain firm in the short term on below average monsoon forecast and expected fall in acreage in the upcoming sowing season.

Overall trend in Guar remains positive due to lower sowing acreage and lower stocks. Any significant decline in the prices should be treated as a good buying opportunity due to strong fundamentals. Expect prices to trade in the range of Rs. 1850-1990 in the short term (August contract).

Courtesy: Angel Commodities

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