InvestorQ : What drives demand and supply for castor seeds?
simran Kaur made post

What drives demand and supply for castor seeds?

user profile image
vidhya Laxmi answered.
2 years ago

Castor seed is produced by over 30 key countries in the world, but India dominates the production of castor seeds with nearly 88% of the overall global output. Each year the global production of castor seeds is around 20 lakh tonnes. One of the key uses of castor seeds is in the production of castor oil. India accounts for nearly 85% of the global exports of castor oil. China, France, Germany, the US and Netherlands are among the major consumers of castor oil in the world. India is the world’s largest producer and exporter of castor oil and castor meal.

Domestic consumption of castor oil is quite limited. Castor oil is got from the extraction of castor seeds. India uses just 10% of its castor oil production while the balance is exported to other countries. Domestically, paints, soaps and detergents are the major consumers of castor oil. Since the largest chunk of castor oil gets exporter, it is global economics that matters most for demand. Globally, India has a virtual monopoly over castor oil production but of late some serious alternatives have been emerging to traditional castor oil. Dehydrated oil, hydrogenated oil, sulphated oil and sulfonated oil are some of the products that are emerging as competitors to castor oil. Hence the price of castor oil needs to be competitive with respect to these peer products.

Since India accounts for nearly 90% of the world production and exports of castor oil, a lot of the economics of this commodity is also dependent on the export infrastructure in India. Poor last mile connectivity, delayed inter-state movement of goods in the pre-GST era and high turnaround times in the ports was all responsible for the inefficiency in the trade in castor oil. Since India happens to be the hub of castor oil production and exports, the INR/USD equation has a major impact on the global pricing of castor oil. All these factors create a great deal of uncertainty with respect to the price of the product and hence hedging becomes essential. It is here that the trading in futures of castor seeds becomes critical. In fact, castor seed prices have a high correlation with the price of castor oil and hence these futures can become an important hedging tool for growers, processors, exporters and end users.