Market Overview
January
- The new crop arrivals in Andhra Pradesh initially caused a decline in red chilli prices. This was due to an increase in market supply, which temporarily exceeded demand.
- In Madhya Pradesh, the heavy rains delayed the start of the cropping season and adversely affected the quality and quantity of the chilli produced, adding pressure to the market.
- These contrasting regional impacts created a volatile market situation, with fluctuating prices reflecting the uncertainty in supply and quality.
February
- February saw initial price stability, but as arrivals increased, particularly an additional 0.1 million bags, the market reacted with a price rise.
- This increase was counterintuitive to the usual market dynamics where increased supply leads to price drops, indicating strong market demand or speculative buying.
- The market sentiment was also affected, with traders and farmers speculating about future price movements based on current arrival trends.
March
- Prices peaked at $2950/MT or €2738/MT, driven by steady arrivals and robust buying support, both from domestic and international markets.
- Despite expectations of a post-Holi slowdown, the market remained strong, highlighting the enduring demand for red chilli.
- This period illustrated the balancing act between supply consistency and strong demand, keeping prices at elevated levels.
April
- There was a significant increase in export rates for chillies, especially the Teja variety, contributing to over a 25% growth since 2017-18.
- Domestic prices climbed to $3150/MT or €2925/MT, propelled by this strong export demand coupled with reduced local arrivals.
- The market dynamics in April reflected the influence of export demand on domestic pricing, showcasing the global interconnectedness of the spice market.
May
- Both market arrivals and prices began to decline, with a notable drop from $3200/MT to $3190/MT or €2962/MT.
- The decrease in export quantity by 19% was counterbalanced by a 9% increase in export revenue, indicating higher prices in international markets.
- May’s market movement was indicative of the balancing forces of supply and demand, with prices adjusting to new market conditions.
June
- Prices stabilized, reflecting a balance between the reduced arrivals and the existing market demand.
- Sowing activities were delayed by 15-20 days due to inadequate rainfall, creating concerns about future supply shortages.
- The market in June was characterized by cautious optimism, with stable prices but looming concerns about future production levels.
July
- Despite reduced crop arrivals and some damage to crops in certain areas, prices managed to hold steady.
- The market’s resilience in July was likely due to a combination of strong demand and the strategic release of stockpiled supplies.
- This month demonstrated the market’s ability to absorb shocks and maintain stability, even in the face of supply challenges.
August
- The month experienced lower-than-normal arrivals of red chilli in major markets, impacting the supply side of the market.
- Some price increases were observed, suggesting that the market was responding to the reduced supply, but overall stability was maintained.
- August’s market dynamics were reflective of a tightly balanced supply-demand equation, with slight supply constraints nudging prices upwards.
September
- The market saw prices remaining within a restricted range due to limited supply, indicating a tight market situation.
- Heavy rains in Madhya Pradesh raised concerns about the quality of the upcoming crop, affecting market sentiment.
- September’s market behaviour underscored the importance of crop quality on price trends and market stability.
October
- The arrival of a new crop in Madhya Pradesh led to decreased prices in Andhra Pradesh and Telangana, a typical market response to increased supply.
- The market showed signs of diminished hopes for price increases due to this increased supply, adjusting to the new crop realities.
- October’s trends were indicative of the cyclical nature of agricultural markets, where new crop arrivals can significantly alter price dynamics.
November
- Red chilli prices remained stable, with no significant increase forecasted, reflecting a market that had found its equilibrium.
- The slow arrival of new crops and stable prices in major markets suggested a well-balanced supply-demand situation.
- November’s stability was a testament to the market’s ability to adapt and stabilize after the fluctuations experienced earlier in the year.
Cultivation, Harvesting & Production
The total production of red chilli in 2023 was significantly impacted by various factors, including climatic conditions and regional crop health issues.
In Madhya Pradesh, heavy monsoon rains resulted in a considerable decrease in both the quantity and quality of chilli production. Conversely, other major chilli-producing regions like Telangana, Karnataka, and Andhra Pradesh experienced better crop conditions, which helped to offset some of the losses from Madhya Pradesh.
The overall production, therefore, was a mix of decreased output in some areas and stable or increased production in others, leading to a complex market scenario.
Price Trends & Reasons for Ups & Downs
January to March
- January: Prices began declining due to increased arrivals from the new crops in Andhra Pradesh. The initial average price was around $2800/MT or €2600/MT but dipped as the market adjusted to the increased supply.
- February: After a period of stability, prices started to increase, partly due to speculative buying. The average price climbed to approximately $2900/MT or €2692/MT, reflecting the market’s reaction to the rising arrivals and the uncertainty around the quality and yield of the upcoming crops.
- March: Prices rose significantly to $2950/MT or €2739/MT This increase was influenced by consistent demand and speculation about the reduced quality of crops from regions like Madhya Pradesh. The market’s strong performance, despite the Holi festival, also played a role in maintaining the upward price trend.
April to June
- April: The price continued its upward trajectory, reaching $3150/MT or €2925/MT This increase was fueled by robust export demand, particularly for the Teja variety, and decreased local arrivals, underscoring the impact of international markets on domestic prices.
- May: A shift occurred with prices reaching slightly to $3190/MT or €2962/MT. The decrease in export quantity contrasted with an increase in export revenue, highlighting the higher price realization in international markets. This phenomenon indicated a strong global demand for quality red chilli despite lower volumes.
- June: Prices stabilized in this period, balancing out the reduced arrivals and the market demand. The delay in sowing activities due to inadequate rainfall raised concerns about future supply, but the market absorbed these concerns without significant price fluctuations.
July to September
- July: Prices remained stable, a reflection of the market’s ability to absorb shocks from reduced crop arrivals and crop damage in some areas. This stability was indicative of a well-balanced market, responding to both supply constraints and steady demand.
- August: The market experienced some price increases due to lower-than-expected arrivals. However, overall stability was maintained, suggesting effective market management and anticipation of future supply patterns.
- September: Prices continued to be stable within a restricted range, despite concerns about crop quality in Madhya Pradesh due to heavy rains. This stability was a testament to the resilience of the market and its ability to adjust to varying supply and demand dynamics.
October & November
- October: The market adjusted to the arrival of new crops from Madhya Pradesh, leading to a decrease in prices in other regions like Andhra Pradesh and Telangana. This typical supply-demand dynamic led to a correction in prices.
- November: Prices remained stable, indicating that the market had reached an equilibrium. The slow arrival of new crops and the stable prices in major markets suggested a well-balanced supply-demand situation.
Domestic Demand & Export/Import Demand
Domestic Demand
Throughout 2023, domestic demand for red chilli showed significant fluctuations, influenced by various factors. These included regional consumption patterns, price sensitivity of consumers, and market supply dynamics.
Periods of high domestic demand often coincided with festivals and cultural events, leading to temporary spikes in prices. Additionally, domestic demand was influenced by the quality of the crop, with better quality crops fetching higher prices.
Export/Import Demand
The export demand for red chilli, especially the Teja variety, was robust throughout the year. This demand influenced domestic prices and supply allocations.
Despite a 19% decrease in export volume, there was a 9% increase in export revenue, indicating a strong international market willing to pay higher prices for quality red chilli. This scenario was particularly evident in markets where Indian red chilli competes with other international suppliers.
Import demand for red chilli in India remained consistent, mainly to supplement local supply and cater to specific quality requirements not met by domestic production.
Impact on Prices & Market
Both domestic and international demand dynamics had a significant impact on red chilli prices. High export demand often led to increased prices domestically due to a diversion of high-quality produce to international markets.
Similarly, fluctuations in domestic demand, driven by seasonal consumption patterns and price sensitivity, impacted market dynamics, influencing the supply and pricing strategies of traders and farmers.
This graph represents the export demand index for red chilli, showcasing the trend over the months. It reflects the robustness of the export market, especially during mid-year, and provides insights into how export demand might have influenced domestic prices and market dynamics.
El Niño or Climate Conditions
The heavy rains in Madhya Pradesh, potentially linked to broader climatic patterns such as El Niño, had a significant impact on the red chilli crop, affecting both its quality and quantity. These climatic conditions underscored the vulnerability of agricultural production to weather extremes and climate change.
The impact of such climate conditions was felt not just in the production areas but also in the wider market, affecting prices, supply dynamics, and overall market stability.
Forecast for Year 2024
Based on the trends and dynamics observed in 2023, the forecast for 2024 hinges on several factors, including climatic conditions, domestic and international demand, and potential government policies.
The impact of the previous year’s crop quality and yield, along with the evolving global economic situation, will also play a significant role in shaping the market in 2024.
Predictions for 2024 would likely include continued volatility in prices and market dynamics, influenced by these various factors and the inherently unpredictable nature of agricultural markets.