Tur, Urad Prices fall up to 25%

Falling Pulse Prices: What It Means for You

Table of Contents

Analysis for a Layman

Recent news reports indicate that retail prices of key pulses like tur dal (pigeon pea) and urad dal (black gram) in India have declined significantly, with tur dal prices falling by 25% and urad dal prices by 10-12% over the last two months. This drop in prices is attributed to several factors, including increased imports from Myanmar due to expectations of a good crop there and reduced local demand during the winter months. Additionally, improved domestic harvest supplies, especially from winter crops like chana and masoor, are contributing to this price correction.

Impact on Retail Investors

The easing of inflationary pressures, particularly in the pulse category, is positive news for the Reserve Bank of India’s (RBI) outlook on interest rates. It may prompt the central bank to reconsider the pace or magnitude of future rate hikes, which can benefit stocks sensitive to interest rate changes.

Retail investors should keep an eye on agricultural input stocks, such as fertilizer companies, as signs of rural economic recovery emerge. Fast-moving consumer goods (FMCG) companies may also experience increased demand from small towns due to improved farm economics. Furthermore, the ongoing global food inflation situation could continue to offer export incentives for agricultural commodities, farm machinery, and irrigation companies like Jain Irrigation. Monitoring crop progress data from key growing states can help in making informed investment decisions.

Impact on Industries

The significant price correction in pulses reflects the effectiveness of government policies, such as allowing duty-free imports from Myanmar, in increasing domestic availability and affordability of these essential food items. This could encourage further imports from countries like Myanmar and Mozambique as their crop seasons progress.

Logistics and warehousing companies are likely to benefit from handling increased agricultural trade volumes. Moreover, price stability can incentivize Indian pulse growers to expand their acreage for the upcoming season, which will positively impact suppliers of farm inputs. With staples inflation easing after cereals, the decline in pulse prices is the next step toward reviving overall rural consumption. Sectors such as FMCG, fertilizers, irrigation, and farm equipment stand to gain as improved farmer economics lead to better crop realization.

Long-Term Benefits & Negatives

In the long run, achieving self-sufficiency in pulse production is crucial for India, given its significance as a source of affordable protein for the predominantly vegetarian population. Enhancing yields through the distribution of high-quality certified seeds and expanding micro-irrigation coverage are essential steps in this direction. Commodity futures exchanges can also play a role in improving price discovery and risk management for market participants.

However, continued reliance on imports during production shortfalls exposes India to global commodity price volatility. Environmental challenges and output shocks can exacerbate supply-demand imbalances. Careful policy planning and management are necessary to maintain a balance between domestic production and imports.

Short-Term Benefits & Negatives

In the short term, the easing of demand and the subsequent drop in pulse prices provide some relief for policymakers and inflation concerns at the RBI. Retail consumers benefit from lower prices, allowing them to allocate their budgets to other essential or discretionary spending as cost pressures decrease.

However, the possibility of a strong winter crop output poses its own challenges, including the risk of discouraging acreage next year if prices plummet due to an influx of imports. Balancing incentives for domestic farmers while exploring global markets opportunistically will be a delicate task. Nonetheless, effective management by the government can lay a solid foundation for long-term domestic pulse production growth in alignment with self-sufficiency goals.

Market Impact of Falling Tur and Urad Prices

Indian Companies Likely to Gain:

1. FMCG Companies: Lower pulse prices will directly benefit FMCG companies that manufacture and sell packaged pulses and pulse-based products. Lower input costs could lead to:

Increased profit margins: Companies like ITC, HUL, Marico, etc., could see improved margins on their pulse-based product lines.
Increased price competitiveness: Companies may choose to pass some cost savings onto consumers through reduced prices, making their products more competitive.
Potential market expansion: Lower prices could encourage increased consumption of pulses, leading to market expansion for companies like Dabur and Tata Global Beverages.

2. Restaurant Chains: Restaurants with pulse-heavy menus like Sagar Ratna, Rajdhani, etc., could benefit from lower input costs. This could translate to:

Cost savings: Lower pulse prices could lead to reduced menu costs, improving profitability.
New menu offerings: Restaurants may introduce new pulse-based dishes at lower price points, attracting new customers.

3. Food Retail: Retail chains like Avenue Supermarts, Reliance Retail, etc., could see increased demand for pulses due to lower prices. This could lead to:

Higher sales volume: Increased demand for pulses could boost overall sales figures.
Improved consumer sentiment: Lower pulse prices could contribute to a more positive shopping experience for consumers.

4. Seed Companies: Companies like Mahyco, Kaveri Seed Company, etc., could benefit from increased farmer interest in pulse cultivation due to higher expected returns. This could lead to:

Higher seed sales: With better profitability prospects for pulse farmers, demand for seeds may increase.
Enhanced brand reputation: Companies promoting high-yielding pulse varieties could see their reputation strengthened.

5. Logistics and Storage Companies: Increased movement of pulses from farms to market and storage facilities could benefit logistics and storage companies like AWL Logistics, WTC Logistics, etc. This could lead to:

Increased volumes: Higher pulse production and market demand could translate to increased transportation and storage needs.
Improved operational efficiency: With larger volumes, logistics companies may be able to negotiate better rates and optimize their operations.

Indian Companies Likely to Lose:

1. Pulse Importers: Companies relying on pulse imports, like Pulses Importers Association of India, could face lower demand and reduced profits due to increased domestic availability. This could lead to:

Lower import volumes: With cheaper domestic pulses, imports may decrease, impacting importer revenue.
Inventory depreciation: Existing imported pulse stocks may depreciate in value as domestic prices fall.

2. Pulses Brokers and Traders: Lower pulse prices could lead to reduced margins for brokers and traders involved in the supply chain. This could lead to:

Lower income: Reduced price difference between farm gate and market prices could squeeze broker and trader profit margins.
Increased competition: More players may enter the market due to lower entry barriers, intensifying competition.

Global Companies:

1. Global Pulse Exporters: Myanmar, a major exporter of tur and urad, could see lower export earnings due to reduced global demand and increased competition from India. This could lead to:

Lower export volumes: Cheaper Indian pulses could capture market share from Myanmar exporters.
Reduced export revenue: Myanmar exporters may have to accept lower prices to remain competitive.

2. Global Fertilizer Companies: Lower pulse prices could lead to reduced fertilizer demand in Myanmar, impacting companies like Yara International, CF Industries, etc. This could lead to:

Lower fertilizer sales: Farmers may reduce fertilizer use if expected returns from pulse cultivation decrease.
Reduced profits: Fertilizer companies may see lower sales volumes and lower profitability in Myanmar.

Market Sentiment:

Overall, the news of falling tur and urad prices is likely to be well-received by the Indian market. FMCG, retail, and restaurant companies are expected to see positive sentiment due to potential profit margin improvements and increased consumer demand. Conversely, pulse importers, brokers, and traders may face negative sentiment due to reduced margins and profitability.

Globally, Myanmar and its related industries might experience negative sentiment due to decreased export earnings and lower demand for fertilizers.

Remember, this is a speculative analysis based on limited information. The actual impact of falling pulse prices on individual companies and market sentiment may vary depending on various factors. It’s crucial to conduct further research and consider individual company financial performance and industry trends before making investment decisions.

Source: ET Bureau (2023, December 22). Tur, Urad Prices Fall up to 25%.