guarseed - Ventura Securities Ltd.

BRIEF REPORT ON GUAR INTRODUCTION Guar (Cyamopsis tetragonoloba (L.) Taub) is a drought-tolerant annual leguminous crop grown mostly in India & Pakistan. It is often used as forage

for

consumption.

cattle It

is

and mostly

as

a

grown

vegetable in

arid,

unirrigated areas as the crop depends on only one or two rainfalls and does not require much fertilizer to grow. Guar plant is a rough to touch, bushy plant that has the ability to dwell even in the drought like conditions. This small, purple flowered, pointed leaved plant ranges from 2-9 feet in height. It is consumed as a bean, livestock fed and also in the form of manure in the fields. Guar seed consists of three parts: Germ, Endosperm and Husk. Guar gum is derived from the endosperm. Upon milling, 100 Kg seeds yield roughly 29 kg of endosperm (splits). Split/Gum is further refined to make Guar Powder. The milling process produces by products Korma and Churi. The amount of Korma and Churi varies from 30% to 41% depending upon the seed quality. Guar seed has a shelf life of up to 3 years. Being a hardy seed, it requires minimal maintenance during storage.

Saturday, August 11, 2007

This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

HISTORY OF GUAR: Being a crop of the arid regions, the origination of guar is controversial as different people have different opinions about it. The actual place of origin is not known but it is believed that it grew wildly in the hot and arid areas of Africa or the deserts of Middle East. The Arab people first domesticated guar to feed their horses with it. When the trade started flourishing in the Middle East during the silk route trading days, the traders brought with them the pods of guar wherever they went and as a result the seeds of this crop got scattered in those countries. This is how guar was introduced into India. India also being a hot weathered country suited well for the crop to dwell properly. The regions in the country possessing desert lands like Gujarat and Rajasthan helped guar to flourish and gain importance as there is a small number of vegetables that can be grown in such areas. This helped the crop to diversify its uses from animal feed to human consumption as well. Guar was introduced into the United States in 1903 by India. Guar was not known for its industrial application till in the times of World War II, when there was shortage of locust bean crop and the paper and textile industry of the world was searching for a substitute. They found as efficient alternative in the form of guar gum and since then, this derivative of guar ruled out locust bean from this scenario and it was readily accepted for application in many other industries.

PROPERTIES OF GUAR Ö

Easy solubility in cold and hot water.

Ö

Better thickening agent.

Ö

Water binding capacity.

Ö

Functioning at low temperatures.

Ö

Film forming property.

Ö

Resistance to oils, greases and solvents.

A major advantage of guar gum is that it does not need to be heated to get thick.



Guar Gum is a whitish to yellowish white powder with a slight odor. The gum is modified to give different variations like odorless and colorless guar for food applications. Guar Gum is used as a thickener and stabilizer in many aqueous systems in food applications

like

gravies,

sauces,

soups,

soup

mixes,

toppings,

syrups

etc,

cheese/dairy/frozen dessert stabilizers and industrial applications like oil drilling muds, textile printing and warp sizing, paper coating, carpet printing and mining flotation. Guar gum is applied for various food and other industrial uses as a viscosifier, thickener, binder, gelling agent, stabilizer, emulsifier, flocculant, water holding agent etc…

AGRO CLIMATIC CONDITIONS It is mostly grown in arid, unirrigated areas as the crop depends on only one or two rainfalls and does not require much fertilizer to grow. Guar is a rain fed monsoon crop, which requires 8-15 inch of rain in 3-4 spell and is harvested in October – November. Guar is a yearly, summer legume and requires warm weather and a relatively long growing season of 20-25 weeks. The crop is harvested in November. It is a rain-based annual crop, also irrigated in mid-season. It is sown immediately after first showers say in July and harvested around November each year. Guar Seed is the basic Raw Material. The crop yield is directly related to the monsoon. The crop requires rain in June end & July beginning for sowing and 2 subsequent rains at an interval of 3 weeks. Small plants are either uprooted or cut from the stem and kept in open for sun drying. Seeds are than taken out of beans either mechanically or manually at farm level.



GUAR GROWING COUNTRIES India leads the list of the major guar producing countries of the world contributing to around 75 to 80% in the world’s total production of around 7.5 lakhs to 10 lakhs tons. Pakistan follows India in the list with 10 - 15% share in the world’s total produce. 75% of the Guar Gum or derivatives produced in India are exported. Guar growing countries ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾

India Pakistan Sudan USA South Africa Brazil Malawi Zaire Australia

INDIAN GUAR MARKET ¾

India has been a major player in the context of guar and guar gum in the global market.

¾

India’s production contributes to 80% of the world’s total production.

¾

Rajasthan wholly retains the credit for India’s position producing 70% of the production itself.

¾

Haryana and Gujarat place themselves at the second and third positions regarding the production in India with 12% and 11% respectively.

¾

Guar is largely consumed as a vegetable in the Indian subcontinent. It is also used in making pickles.

¾

25000 tons of the total production in the country constitutes to the domestic market.

¾

Guar gum has a vast range of industrial applications and the major share of demand comes from various industrial sectors only.



¾

India is the leading net exporter of guar seeds and guar gum. The country exports over 117000 tons of guar and its derivatives, which is comprised by 33000 tons of refined split guar gum, and 84000 tons of treated and pulverized guar gum.

¾

The net worth of the Indian exports is estimated over Rs 500 crores.

¾

The production list of guar is dominated by India as a leading producer of this crop. The consumption pattern of guar seeds is largely influenced by the demands from the petroleum industry of United States of America and the oil fields in the Middle East as the derivative products of these seeds are quite useful in the petroleum drilling industries.

¾

United States alone constitute to around 40 thousand tons of guar and its derivatives demand.

¾

Also, in rest of the world, the trend of consumption has increased with time that has lead to the introduction of this crop in many countries.

INDIAN PRODUCTION AND CULTIVATION: Guar crop requires fertile, medium textured sandy soil types and a hot and dry climate to grow and prosper well. Also it needs a right and appropriate amount of rainfall, as it is a key factor for a high yield. It is a short duration crop and is harvested within 3 to 4 months of its plantation. Guar is a rain fed crop and is generally sown after the monsoon rainfall between the second half of July and early August. It is harvested from late October till November. India produces around 600,000 -800,000 lakh tons of guar annually i.e. the maximum level of production in the world. The major producing regions of this crop in India are ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾

Rajasthan Gujarat Haryana Punjab Uttar Pradesh Madhya Pradesh Tamil Nadu Maharashtra



In most of the regions of its cultivation including India, it is cultivated as a khariff crop. The sowing period is in the months July and August right after the first shower of the monsoon and the harvesting period is in the months October and November. Harvesting Chart of Guar Seed in India Country

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

India

INDIAN PRODUCTION Total Area under cultivation and production of guar seed is shown in the following table. Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Area (Lakh ha)

Rajasthan prod

Yield (kg/ha)

All India Production

16.12 26.48 30.56 24.13 5.56 20 23.64 -

3.2 2.32 4.81 7.63 0.28 6 3.45 -

NA NA NA 316 50 300 146 -

4.5 3.31 6.81 10.9 0.4 8.57 4.82 6 6.8

Actual Rainfall as % of Normal Rainfall (All India) 106 96 92 92 81 102 87 99 99

The details are for the state of Rajasthan. Source: NABARD @ Assumption of 70% of the crop production is from Rajasthan. * Trade Estimations

Year 2002 was a drought year when rainfall was deficit of 19% as compared to normal rainfall

MAJOR TRADING CENTERS State Rajasthan Gujarat Haryana Punjab

Mandis Hanumangarh, Shriganganagar, Bikaner, Churu, Jodhpur, Sikar, Jaipur, Jaisalmer, Barmer and Nagaur Kutch, Banaskanta, Sabarkanta, Mehsana and Patan Adampur, Ellenabad, Fatehbad, Hisar, Sirsa and Bhiwani Bhatinda



VALUE CHAIN FOR GUAR GUM FARMER TRADER/STOCKIEST SPLIT PROCESSING UNIT POWDER PROCESSING UNIT INDUSTIAL USE (GUAR GUM) MAJOR EXPORTER India is also the world leader in the exports of guar and its by-products followed by Pakistan. The major countries indulged in the exports of guar gum are India Pakistan USA Italy Morocco Spain France Greece ¾ Germany ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾



INDIAN EXPORTS USA is the major importing country followed by China and Germany. The other important importing countries from India are Netherlands, U.K., Japan and Italy.

U.S.A. CHINA GERMANY ITALY NETHERLANDS SOUTH AFRICA CANADA U.K. BELGIUM RUSSIA Others

2003-04 QTY VALUE 44684.31 19557.33 8579.27 3191.32 15542.89 6248.68 4136.77 1858.5 2114.29 971.27 3930.15 1364.32 2298.04 1041.95 2915.88 1493.61 1005 409.81 1004.8 418.5 34349.89 14234.26

PRODUCT TOTAL:

120561.3

Country

50789.55

2004-05 QTY VALUE 54049.31 28558.5 13486.8 5986.05 15089.17 9713.86 4150.42 2239.58 2291.44 1143.21 3069.2 1620.82 2815.62 1390.53 2914.97 1540.19 1658.15 870.68 1052.53 569.47 30722.4 15314.82 131300

2005-06 QTY VALUE 75186.65 46577.04 27133.43 12722.69 17779.47 12146.72 4587.02 2396.22 4439.1 2331.79 4666.33 2283.3 3744.85 2085.73 4141.34 2076.42 3803.14 1972.5 3342 1726.61 37895.1 18604.28

68947.71

186718.4

104923.3

SOURCE: DGCIS,ANNUAL VOLUME QTYIN :MTS VALUE :IN LAKHS

Following chart shows the share of major countries of Indian Guar Gum

80000 70000 60000 50000 40000 30000 20000 10000 0

2003-04 QTY 2004-05 QTY

¾

O

th

er s

SI A R U S

IU M LG

BE

U .K .

IT A N LY ET H ER LA SO N D U S TH AF R IC A C AN AD A

AN Y ER M

G

C H IN A

U .S .A

.

2005-06 QTY

Chinese imports from India has increased sharply in the last years



¾

China overtook Germany as second largest importer of Indian guar gum in 20052006

¾

Demand from major importing countries viz. USA and China increased sharply in the last few years followed by the rally in crude oil prices

Percentage growth quantity v/s price

Following table shows the annual exports of guar gum in terms of quantity and value. Year 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Qty 83283.40 95169.93 102728.61 91990.01 113746.84 129530.84 117883.03 111948.36 120561.27 131299.98 186718.4

Value in Crores 227.20 356.13 544.99 727.70 814.76 602.95 403.09 486.74 507.90 689.48 1049.23

Rate 2728.03 3742.04 5305.14 7910.64 7162.92 4654.88 3419.41 4347.90 4212.80 5251.18 5619.32

% Change Qty.

% Change Rate

14% 8% -10% 24% 14% -9% -5% 8% 9% 42%

57% 53% 34% 12% -26% -33% 21% 4% 36% 52%

The following chart represents the exports of guar gum and the average price of exports

8500

210000 190000

7500 6500

150000

5500

130000 110000

Rate

Qty (MT)

170000

4500

90000 3500

70000 50000

2500 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 20051996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year



Percentage

change

in

Price

vs.

Percentage

change

in

Export

quantity

170%

% Growth Qty.

% Growth Rate

150% 130% 110% 90% 70% 50% 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 20051997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Following observations can be made from the above charts

¾

Exports of guar gum has increased sharply by 42% in 2005-2006 as compared to previous year

¾

As the prices increases the export quantity declines

¾

In 1998-1999 the average price of guar gum increased sharply leading to a sharp fall in exports

EXPORTS IN APRIL-JUNE ¾

India's guar gum exports in April-June fell 1.9 percent in value terms to 2.58 billion rupees

¾

The fall in exports is mainly due to appreciation of rupee. The Indian rupee has risen over 9 percent in 2007.

¾

In volume terms, India exported around 50,000 tonnes of guar gum during the quarter



Monthly exports of guar gum

Rs. In Lakhs

Rate

April May June July August September October November December January February March

20042005 Qty 8720 10350 10038 8642 7209 8319 8500* 13352 15251 10473 14878 15575

3728.14 4529.33 4521.27 3671.52 3927.51 4068.92 4500* 8264.31 8660.86 7279.31 7696.19 8100.33

Total

131307

68947.69

Month\Year

Rs. In Lakhs

Rate

4275 4376 4504 4248 5448 4891 5294 6190 5679 6951 5173 5201

20052006 Qty 12485 9921 10997 12190 14558 15659 7018 19030 25238 19443 18053 21938

Rs. In Lakhs

Rate

5253 5430 5701 7996 4852 5246 3970 6497 5224 5739 5295 5436

20062007 Qty 12653 12616 17952 17351 17847 19901 11161 13388 12309 15163 -

6558.39 5387.47 6269.64 9746.63 7063.58 8214.24 2786.44 12364.74 13185.38 11158.68 9558.22 11925.93

7656.05 7487.28 10895.98 10077.87 11278.28 12008.15 6874.16 8720.84 7472.97 8745.88 -

6051 5935 6070 5808 6319 6034 6159 6514 6071 5768 -

5251

186530

104219.34

5587

150341

91217.46

6067

Note- * Indicative figures 2004-2005 Qty Rate

30,000

2005-2006 Qty Rate

2006-2007Qty Rate

8,500 8,000

25,000

7,500 7,000

20,000

6,500 15,000

6,000 5,500

10,000

5,000 4,500

5,000

4,000

M ar ch

Ja nu ar y Fe br ua ry

O ct ob er N ov em be r D ec em be r

A ug us t S ep te m be r

Ju ly

Ju ne

3,500

M ay

A pr il

0

Following observations can be made from the above chart;

¾

Demand is seen higher from December to March followed by new crop availability during the period



¾

Although the exports of guar gum vary with respect to the price change in annual term; exports are almost stable on monthly basis

¾

Export prices in 2006-2007 are almost steady in the range of Rs.5800-6100 per MT

INDUSTRIAL USE Industrial Uses: The guar splits are further processed into guar gum powder which has large industrial uses. The uses of guar gum and the share of various end uses can be divided as follows, Food-Human and Animal Frozen Foods Bakery Dairy Products Canned Foods 35-40% Dressing Instant Mixes Beverages Pet Foods Pharmaceuticals Laxative Slimming Aids 5% Diabetic Treatment Tablet preparation Ointment

Technical Oil Well drilling Textile Printing Paper Explosive Mining Tobacco Water treatment Fire fighting

5055%

Cosmetic and Miscellaneous Hair Setting Soaping and Shampoos 5% Lipsticks Mosquito coils

SUBSTITUTES Cheaper substitutes of Guar are available Guar for industrial application. Tamarind kernel powder has considerably replaced Guar Gum in textile sector. Similarly Cassia Tora is expected to substitute guar gum in textiles, pet food etc. Only food and pharmaceutical endusers have stable demand due to increasing preference for natural products.



MARKET INFLUENCING FACTORS ¾

Carry over stocks: leftover stocks from the previous year’s production after meeting the demand.

¾

Expected demand: average level of consumption and exports during the past few years

¾

Crop acreage: Extent of area sown under the crop

¾

Production: Estimated output based on the acreage and weather conditions and pest infestation etc.,

¾

Imports and exports: The traders need to monitor the demand supply status of important destinations of exports. Further, the traders have to monitor the crop status in the respective countries.

¾

Government policies: any change in government policy relating to the crops and trade may have to be considered

CURRENT SCENARIO EFFECT OF DIOXIN TO INDIA'S GUAR GUM EXPORTS ¾

India's guar gum exports may be hit in the short term after European Union food safety experts issued a recent alert on high levels of dioxins in gum.

¾

Swiss company Unipektin AG, which supplies guar gum products to EU markets, recalled several batches of food additives containing guar gum on July 30.

¾

Swiss authorities have told the European Commission, the EU's executive arm that administers EU policy and standards, that nine EU countries had received guar gum consignments from Unipektin.

¾

Commission food safety experts alerted national authorities in the EU-27 to detain guar gum exports from India Glycols, and test consignments for pentachlorophenol and dioxin. Guar gum coming from other suppliers will also be sampled.



¾

Hungary has already blocked the sale of several items from a wide range of food, feed and drug products after finding dioxin levels that exceeded the EU's permitted maximum.

¾

Indian exports will definitely be affected in the short term until the issue is settled

¾

Guar gum is used as an additive in a wide variety of foods: dairy products such as yoghurts, ice-cream and soft cheese, bread, pasta, ham, sausages, prepared fish and pastries.

¾

Experts in EU member states will check whether the batch complies with EU rules on maximum dioxin levels.

If the products comply with EU standards, they can remain on the market But if they do not, "a withdrawal/recall from the market has to be ordered”.

EXPENSIVE TESTS ¾

Most importers are asking for test certificates for the presence of toxic substances in guar gum, adding to costs and raising exporter fears that their clients may seek alternatives.

¾

The present cost of certification is very high and most guar gum exporters being small, it is very difficult for them to afford the cost.

MONSOON PROGRESS In its long-range forecast, the Met has projected the rainfall during Jun-Sep to be 93% of the long-period average down from its earlier projection of 95%.



The following is the all-India weighted average weekly rainfall since the beginning of the southwest monsoon season:

Rainfall(mm)

Normal(mm)

Change

May 31-Jun 6

13.8

22.6

(-)39%

Jun 7-Jun 13

27.0

30.8

(-)12%

Jun 14-Jun 20

51.0

38.3

33%

Jun 21-Jun 27

61.0

49.2

24%

Jun 28-Jul 4

90.1

59.0

53%

Jul 5-Jul 11

70.5

65.1

8%

Jul 12-Jul 18

50.4

67.6

(-)25%

Jul 19-Jul 25

47.7

67.8

(-)30%

Jul 26-Aug 1

65.1

67.2

(-)3%

471.0

455.6

3%

Period

Season so far

Southwest monsoon so far has been marginally above normal. Between Jun 1 and Aug 1, the weighted average rainfall in the country was 471.0 mm, 3% above the long-period average of 455.6 mm. The following table gives rainfall during Jun 1 to Aug 1 in guar growing divisions in the country (in mm)

Meteorological divisions

Actual

Normal

Haryana & Delhi

169

220

(-)23%

Punjab

193

240

(-)19%

West Rajasthan

119

131

(-)9%

East Rajasthan

287

292

(-)2%

Gujarat Region

644

495

30%

Saurashtra & Kutch

322

280

15%

Variation



¾

During the period, rains were normal-to-excess in Gujarat, Saurashtra & Kutch.

¾

Haryana & Delhi divisions received scanty rainfall but major guar growing area is dependent on irrigation

¾

East and west divisions of Rajasthan received lower rainfall but the sowing is still lagging far behind in the region

SOWING PROGRESS ¾

Sowing in Haryana is up by around 25% as compared to last year

¾

Area of sowing in Ganaganagar and Hanumangarh belt is expected to remain same as compared to last year

¾

A major part in Bikaner, Barmer, Jaiselmer and Jodhpur sowing is lagging far behind. Sowing is covered only in 25% of area of the belt.

¾

Sowing is covered in around 50% area in Churu belt of Rajasthan

¾

Gujarat is expected to give a steady production of around 1 Lakh MT

SUMMARY ¾ Exports of guar gum has increased sharply by 42% in 2005-2006 YOY ¾

India's guar gum exports in April-June fell 1.9 percent in value terms to 2.58 billion rupees The fall in exports is due to appreciation of rupee

¾

Chinese imports has increased sharply in the last years; becoming the second largest importer of Indian Guar Gum

¾

Demand from major importing countries viz. USA and China increased sharply in the last few years followed by the rally in crude oil prices

¾ Till July 10 there were no complaints of monsoon. However, the subsequent two weeks have made the weatherman sit up. A similar phenomenon in July 2002 and 2004 led to a drought!

¾ Sowing is higher in Haryana, whereas it is lagging far behind in major guar producing belt of Rajasthan



TECHNICAL OUTLOOK: NCDEX GUARSEED made a high of 2442 in July 2006 after which came down to 1585 level in June 2007. First retracement of downside really is 1915. Above 1920 two consecutive closes can show 2011, 2110 target. Currently RSI is in neutral level. It has strong support @ 1550-1600 level which is also trend line support. Guar seed is trading in a triangular pattern. The corrective expected at present are 18101835-1890. A weekly close above 1890 will raise a probability of crossing 2085. Two consecutive closes above 1975 will initiate a triangular breakout which can lead the prices towards 2450. However two consecutive closes below 1585 will prove weakness and has a probability of going Rs.475 down from the levels.

Recommendation: BUY NCDEX GUARSSED ABOVE 1820 ON TWO CONSECUTIVE CLOSING FOR TARGET OF 2110 WITH A STOP LOSS OF 1585. OR



BUY NCDEX GUARSEED IN THE RANGE OF 1550-1590 RANGE FOR TARGET OF 1920, 2011, 2110 TARGET WITH A STOP LOSS OF 1350

Ventura Commodities Pvt. Ltd. Registered Office: Dhannur “E”, 15, Sir P.M. Road, Mumbai – 400 001; +91 22 2266 0969. This report is neither an offer nor a solicitation to purchase or sell commodities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the commodities mentioned in their articles. Neither Ventura Commodities Pvt. Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private contribution.

