Guar Gum: About to Get Exciting Again?

Spend Matters welcomes a guest post from Robert Miles, at Mintec Ltd.

In anticipation of a larger Indian crop this year, prices for one of the big movers of the last year recently came distinctly off the boil, but right now as weather worries sweep the globe, with severe drought in some parts of the US and torrential rains across many parts of northern continental Europe and the UK, the Indian monsoon is being watched closely by speculators and a lot rests on what might transpire over the next few weeks.

Sowing of the next guar crop in India began with the onset of monsoon rains in June and harvesting is anticipated to begin in October. As much as 3.5m hectares (8.6m acres) is expected to be sown with the crop this year, a rise of something like 28% on the area sown in 2011.

With demand high, and likely to rise, buying is expected to be brisk. But trading in guar gum and guar seed futures on the Nation Commodity and Derivatives Exchange (NCDEX) in India were suspended in March to curb speculation, after prices rose more than tenfold in a matter of weeks to a record level that many were worried looked unsustainably high.

Mindful of previous commodity collapses, and the subsequent damage to unwary farmers and speculators, the regulators were perhaps wise to step in, but the trade in futures does help to provide useful direction to the markets, and higher prices can encourage increased production to meet what might inevitably be increased demand in the coming years.

A decision on whether or not to re-list the banned guar futures is expected by the end of July.

India produces on average more than 1mm tonnes of guar beans annually. It exports more than 0.4m tonnes of guar products, but exporting beans is prohibited. Attempts to grow guar in other climates has been slightly less successful, as without the heavy rains of the monsoon it is thought that the specific gelling properties of the guar seed do not develop to quite the desired extent. Guar from other origins has its uses, but India guar is thought likely to demand a premium, due to its superior qualities and is therefore in particular demand for its increasing use in hydraulic fracturing (fracking) techniques used to release increased quantities of crude oil and natural gas.

With the coming guar harvests and demand for food grade guar in India often tending to tail off around the time of the start of the Diwali festival (which in 2012 begins on the 13th November) prices may continue to fall, but in the longer term unless the incentive remains for farmers in India to increase supply, a further spike as stocks dwindle before the next crop next year, is likely to occur and it might easily be a case of déjà vu and painful spikes -- all over again!

- Robert Miles, Mintec Ltd.

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