Date: 11 November 2010

Guar Seed Report 2010-2011

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Guar seed

After touching Rs3000 mark (in December 2009) for the first time since launch of futures trading,
prices corrected sharply below Rs2000 in September month. Record production estimates for
2010-11 due to higher acreage and favorable weather conditions in northwest region, pressurized
the prices during 2010. Northwest region, where guar seed is mostly cultivated had received
rainfall of excess of 13 percent during south-west monsoon highest in recent years.

What is Guar seed?

Guar seed a drought tolerant kharif crop, mostly cultivated in northwestern parts of the country.
This crop is a rain-fed monsoon crop that requires 3-4 spells and grows well in sandy soils. Pods are
sun-dried after harvest and seeds are separated manually. The by-products are churi and korma
and are mostly used as cattle feed. Seed consists of three parts: Germ (43-47%), Endosperm (35-
42%) and husk (14-17%).

Sowing and Harvesting Season

The crop is sown from July and extends up to August. It is harvested from September and ends in
December. Early harvesting is seen in northern parts of Rajasthan, Haryana and Punjab. Harvesting
is done in Nov-Dec in western parts of Rajasthan.

Jun-Jul Aug-Sep Oct-Dec Jan - May

Sowing Growth Peak arrivals Lean arrivals

Extraction & Uses

Guar gum/split is extracted from seed, which accounts for 30% of whole seed (+/- 4% variance).
The ratio of churi and korma varies from 30% to 41% depending upon the quality of the seed. Guar
gum is further refined to guar powder, while churi and korma are used as cattle feed.

Processing flow chart

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Uses of guar gum:

• Industrial uses: Oil well drilling, textiles, printing, paper making, explosives, mining, etc.
These sectors consume 50-55 percent of guar gum.
• Food: Frozen foods, bakeries, dairy products, canned products, beverages, etc., which
consume 35-40% of gum
• Pharmaceuticals: Diabetic treatment, slimming aids and ointments, consuming about 5%
of total guar gum

The market structure

Indian Scenario

Rajasthan, Haryana, Gujarat and Punjab are producing states. Among them, Rajasthan is largest
producing state and contributes 50-60 percent to total domestic output. The share of this state has
fallen to 50% in last couple of years from as high as 85%, it was producing earlier. Haryana and
Punjab have emerged as major producers in recent years. Gujarat contributes 7-8 percent of total
output. In Rajasthan, Jodhpur, Ganganagar, Hanumangarh, Bikaner, Sirohi etc are major producing
districts. The southern districts of Haryana and Punjab are major producing districts.

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Guar seed is a monsoon crop and further require dry weather for better production. The annual
production is related to rainfall. The production will be higher if the crop receives good rainfall and
will result in decline in prices. From the year 2005 the availability of rainfall was steady which
maintained the production of crop in a range bound. Accordingly the price of gaur seed was also
steady from the year 2005 till 2008. And in 2009-2010 the production was 3.5 lakh tons due to
unfavorable rainfall and the price hit all time high in the spot and futures market. During that
season (2009-2010) the farmers shifted to profitable crops as the availability of rain was only
392.1MM. But this year the overall fundamentals are favorable for guar seed productions and have
received 688.2 MM rain. The output is estimated to increase in this fiscal year at around 10 lakh
bags against 3.5 lakh bags in 2009-2010.

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Source: APEDA

Guar gum which is extracted from guar seed is used as a raw material in textiles, cosmetics,
pharmaceuticals, etc. India is one of the major exporter of guar gum to other countries like US,
Germany, UK, etc. In 2009-2010 the export demand of guar gum has increased and was around 2.18
lakh tons which was less compared to 2008-2009 of 2.50 lakh tons. And in upcoming months
(November-March) the demand is expected to further increase as the crushing activities increases
in these months. And the upcoming seasonal demand will also increase the demand for guar seed in
global market. Strong demand for churi and korma is expected to increase the domestic market.

Price Analysis

Price Seasonality in Guar seed

106

104

102

100

98

96

94

92

90
Jan Feb Mar Ap r May Jun Jul Aug Sep Oct No v Dec

The price of guar seed is depended on the forecasted monsoon in major growing areas and is very
volatile during April-July and by the end of November. The guar seed prices fell during the month of
May-June due to strong market speculation on expectation of better output before the arrival of
monsoon. And a declined trend is visible during September month as the harvesting season of guar
seed is during the period of September-December. In addition the demand for guar seed byproducts
like churi and korma, were weak due to good availability of green fodder. By the end of October

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month an increase in export demand of guar gum and stockiest buying of newly arrived crops
imparted an increasing trend in the prices of guar seed.

Source: NCDEX

The spot price of guarseed was trading below Rs.2000 from the year 2005 to 2009. In 2006 the
price touched at around Rs.2300 due to strong export demand for guar gum. And an increased
trend in the spot price of guar gum was also witnessed at that time. However report relating to
contamination in gaur gum exported from India led to a decline in the spot price of guar seed and
guar gum by the end of 2008. In 2009 unfavourable fundamentals like late arrivals of rain made the
farmers to shift to profitable crops like cotton and further resulted in decline in production
compared to 2008. So an increasing price trend was visible from the year 2009 onwards.
Accordingly the spot price of guar seed and guar gum reached to peak level of around Rs.2700 and
Rs.5800 respectively. In the year 2010-2011, strong demand from millers supported the prices. And
the rise in demand for churi and korma which is used as cattle feed due to limited availability of
green fodder also supported the market trend. And the prices of gaur seed touched around Rs.2650
and guar gum was priced at Rs.5800, in current year.

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The average ratio of guar seed and guar gum from the year 2005 to 2009 was 2.50. And from 2009
onwards the ratio started declining and reached at an average of 2.10. The price of guar gum has
great influence on guar seed prices and the guar gum price was falling at a higher rate than the
price of guar seed. The major reason for fall in ratio is sharp rise in prices of churi and korma that
influenced the guar seed prices to rise even as guar gum export demand remained steady. In 2010-
2011 the export demand for guar gum and the demand for churi and korma are expected to
increase which may further raise the price trend.

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Supply and Demand estimates for 2010-2011

Supply (Lakh bags) Demand (Lakh bags)

Production 100 Demand 85

Carry forward stocks (including gum) 30 Stocks at the end of the year 45

Note: Normally every year carry forward of 25-30 lakh bags is observed.

Price outlook

Due to higher production estimates for 2010-2011, the prices have corrected more than 30 percent
from all time highs. Fresh buying from stockiest and exporters may emerge at lower levels
especially during peak arrival season (Nov-Dec). At the same time, farmers may not sell
aggressively at lower levels as most of the kharif crops are fetching higher price compared to guar
seed. These factors can limit major decline in prices in long term despite higher output estimates
for this year. Broad trading range till next monsoon forecast (April 2011) can be Rs2000-2800. In
the short term, prices might come under pressure due to higher arrivals especially in December.

Short term: (2-3 months)

Rs 2000-2100

Long term: (4-6 months) Rs 2800

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