Commodity Online
With elections due in three states—Maharashtra, Arunachal Pradesh and Haryana, the recent rebound of inflation is a cause for worry. Annual inflation for food articles soared to 15.64% in the week ended September 12, the highest in more than a decade, fueled largely by a 75% rise in potato prices and a 45% increase in the prices of vegetables and sugar. The UPA government is expected to take some measures on a war footing to rein in the food prices to avoid a poll debacle.

Riding high on uptrend in global coffee prices, India’s coffee production is set to cross the crucial three lakh tonne mark in 2009-10. In 2008-2009, the coffee production wast 2.62 lakh tonnes while it is expected to reach around 3.06 lakh tonne by 2009-2010, according to Anil Bhandari, Member, Coffee Board.

Considering cumulative rainfall from June to September, expected retention of moisture in soil between October and December, and recharge in the ground water level, the Union Agriculture Ministry expects no major dip in the coverage of food crops in the coming Rabi season.

Bullion
Bullion prices could bounce back after last week’s sharp fall if the dollar resumes weakness. A weaker dollar could provide support to the downside and make gold look attractive for holders of other currencies. There is uncertainty over the global economic situation and gold remains the choice as a safe-haven asset. Gold prices have declined for the first week after six straight weekly gains. Trading became choppy as the week started with the US Fed meet and risk appetite in financial markets became affected. A bounce back in the dollar also affected gold prices as it made the yellow metal look expensive for holders of other currencies. But the trend in the dollar remains down and this factor will continue to support gold prices. In the near-term factors like weakness in the dollar, uncertainty over economic scenario and concern over inflation could continue to provide upside to gold prices. However, profit-booking is expected at higher levels in coming days. In the coming week, Spot Gold prices have support at $983.95/$975.00 and face resistance at $1013/$1030. MCX October Gold has support at 15400/15000 levels whereas resistance is seen at 15850/16050 levels.

Base Metals
Though we are witnessing a range of positive economic data, we feel that this has been mainly driven by the stimulus measures taken by governments. Commodity prices could witness a correction in the near-term as the recent rally has been much ahead of fundamentals. Economic have shown positive response to the fiscal, monetary and other financial measures. Until now it has not been the real demand rise which has contributed to the rally in prices. A weaker dollar has also supported the upside. Though there is no indication of an interest rate rise by the US Fed in the near-term, we feel that in the coming months there could be a rise in interest rate which could lead to – a stronger dollar and thereby pressure on dollar-denominated commodities. Prices witnessed a sharp decline yesterday on the back of a strong dollar and concerns over the overall economic situation. We expect prices to remain under pressure as explained above that the rally has been ahead of actual change in fundamentals. MCX November Copper has support around 282/275 levels whereas resistance is seen at 297/306 levels.
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Energy
Oil prices slumped sharply during the last week as bearish oil data pressure on prices. Crude oil inventories climbed 2.86 million barrels to 335.6 million in the last week. Supplies of gasoline and distillate fuels, such as heating oil and diesel, rose more than estimated. Since the inventory data was bearish prices felt pressure on the downside. Overall, rising inventories indicate a bleak demand scenario and oil prices could remain under pressure however, if the dollar continues to weaken then it could provide support on the downside. Actual demand scenario is not very bullish and going forward prices will witness real recovery only if demand improves.

Oil prices could continue to trade with a negative bias as inventory data has been bearish and that factor could put pressure on oil prices. Since dollar denominated commodities get influenced by movement in the currency market, a weaker dollar could make oil prices look attractive for holders of other currencies. Seasonal maintenance has idled capacities at refiners and that is the main reason behind a rise in inventories. In the coming week, crude oil prices have support at $63.50/$61.05 and face resistance at $70.10/$74.70. MCX October Crude oil has support at 3050/2880 levels whereas resistance is seen at 3470/3620 levels.

Soybean
Soybean (NCDEX November contract) futures moved in a range of 1913-2022.50 levels during the last week. In the beginning of the week prices fell slightly on account of harvesting pressure of new crop in Maharashtra and Madhya Pradesh provided support to bears in the market. However, prices surged sharply towards end of the week on account of firm overseas market and short covering after sharp fall of during the last 3-4 weeks. Lower sowing acreage of domestic oilseeds and bullish USDA’s weekly export sales report provided support to bulls in the market. Domestic kharif oilseeds area so far been covered on 172.21 lakh hectares against 181.34 lakh hectares during corresponding period a year ago, as on September 24, 2009.

The area under soybean is reported down at 95.90 lakh hectares against 96.24 lakh hectares a year ago, groundnut at 44.22 lakh hectares vs 51.95 lakh hectares in the corresponding period last year, sunflower sowing is reported at 5.61 lakh hectares against 6.31 lakh hectares, sesamum at 17.01 lakh hectares versus 14.79 lakh hectares last year, niger 2.40 lakh hectares against 3.45 lakh hectares and the sowing of castor seed is reported at 7.06 lakh hectares compared to 8.59 lakh hectares in the corresponding period last year. As per USDA’s weekly export sales were well above trade expectations in soybeans, meal and oil. Net soybean sales were 937,000 tonnes. As of September 17th, cumulative soybean sales stand at 53.9% of the USDA forecast, still nearly double the 5 year average of 27.8%. Sales need to average just 322,000 tonnes each week to reach the USDA forecast. Net meal sales were total of 170,700 tonnes. Sales need to average 117,000 tonnes each week to reach the USDA forecast. Net oil sales were total of 106,200 tonnes for 2008/09. Sales need to average 23,000 tonnes each week to reach the USDA forecast. In the coming week, prices are expected to move slightly higher on account short covering and above mentioned fundamentals. Prices have strong support at 1945/1880 and resistance is seen at 2060/2115 levels.

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