Dear Sir,
Kindly find below our take on the Indian and the International Pepper market.

Black Pepper Market Report;

The Indian Pepper Exchange has been the principle reason for the markets coming down from levels of 4000 USD/MT to levels of 2600 USD/MT FOB for MG1 ASTA. Between the price movements is a whole story waiting to be told.
The Indian exchange is charateristic of such price movements, even from before. But, the reason behind the current drop, non withstanding, the future outlook is still important and worthy of consideration.

The Indian markets have come down during the months of September, Oct, Nov. These months are also periods of short arrivals in the markets as the season is over and physical availability is close to non existant. This non availability automatically forces the markets, sellers and buyers alike to take long positions in the exchange market for their physical commitments. The exchanges, most of them having their own insider trading, use this opportunity to make quick bucks, by bringing the market down.

The exporter community in India is a small community. The whole of the Indian exporting community at any point of time, is capable of holding sales of about 8000 Tons. The stocks in the exchange are available in a monthly once delivery period interval. It is a surprise that the stocks held in the exchange for deliveries for the next 6 months are lessor than 2800 Tons.

http://www.ncdex.com/Downloads/ClearingServices/52%c2%a7142%c2%a7comm_mis_03112008_FED.pdf

This means with the exporters overcommitting by thousands of tons every month, there are likely to be defaults in the months to come if markets stays at current levels. There are no physical arrivals in the market from farm gate level. The monthly requirement of about 3000 tons in this dull market, being the domestic demand is being catered to by the stock holders. At the current trend and at the rate at which stocks are being depleted, we are very firmly of the opinion that the markets will soon run out of physical stocks for the domestic market. What about export commitments. We know that domestic business running into defaults is not a new thing to happen.
But, the Indian exporter community has never defaulted in the International market. Serious shippers will have to ship at any price. The exchange can default by paying a penalty of 3%. This is where, the exporting community is staking in the Indian exchange.

It is important to note, the current stock levels in India.
We estimate it as below;
Domestic sale centres- 750 Tons.
Origins- 2000 TonsPepper Exchange - 2800 Tons
Iron Stocks, Dealers, Traders etc- 2500 Tons
Total Stocks - 8050 Tons

Indian consumption for the months of November and December- 6000 Tons.
Exporters commitment for this period- 4000 Tons.
Exporters commitment for Jan- July - 4000 Tons.

The whole market has been wrestled down, considering technical charts. The markets have been brought down at a period when the USD has been appreciating against the Ruppee. But the Indian markets have also fallen considerably in Ruppee terms. Dollar is today fetching 48 Rs while 4 months back, it was fething 40 Rs. This has in fact even more exxagerated the fall.

The Indian new Crop; The Indian Season might be delayed this year, upto February. We have seen last year, that the Indian new crop started tricking in only by the beginning of February. This year too due to delayed monsoons, we might see such a trend. The Indian new crop, promises to be phenomenally low sized crop. Due to never seen before weather patterns, Indian pepper crop is probably down by a half from the worlds favorite origin.

Last years crop was estimated thus;
Kerala; 26000 Tons
Karanataka; 13000 tons
Tamil Nadu; 4000 tons
Rest of India; 2000 Tons

The Indian weather played havoc with drought conditions prevailing upto July, three months down the Rainy season. Below are links that will clearly depict these matters to highlight the weather conditions in Malabar region.

http://www.thehindubusinessline.com/2004/03/03/stories/2004030300591300.htm

http://www.thehindubusinessline.com/2004/03/04/stories/2004030401221700.htm

http://www.thaindian.com/newsportal/business/kerala-set-to-face-water-shortage-due-to-poor-monsoon_10068608.html

http://www.thaindian.com/newsportal/enviornment/water-water-everywhere-in-kerala-but-very-little-to-drink_10070910.html

Black Pepper is a water pollinated crop. With lack of rains in the growing areas right upto the end of July, and then rains that followed, which started as though the dams of heaven were opened up has lead to large scale destruction of agricultural produce in general, and to pepper, it has created havoc. Karanataka, which is beigbouring Kerala, has been declared a drought area too. Tamil Nadu also has been declared a drought Area by the National Commission.

News artilces declaring Tamil Nadu as drought hit

http://www.hinduonnet.com/fline/fl2106/stories/20040326003103500.htm

http://www.hinduonnet.com/2001/08/05/stories/0505134d.htmhttp://desertification.wordpress.com/2008/07/08/tamil-nadu-should-prepare-for-drought-report-google-business-standard/

News articles declaring Karantaka as drought hit

http://www.hindu.com/2008/08/23/stories/2008082354870600.htm

http://www.hindu.com/2008/10/19/stories/2008101950870300.htm

The Indian pepper crop of Kerala and its neighbouring karantaka and Tamil nadu stand estimated as below;
Kerala; 15000 Tons
Karnataka; 14000 Tons
Tamil Nadu; 2000 Tons
Rest of India; 2000 Tons
Total 33000 Tons.

We are preparing and sending this report hoping that this will help you decide if India, should be the reason that the world market be held down. In India, the exporting community fears that selling overseas will mean, that they will have to prepare for the worst in the time to come. With the new crop starting in February, and buffer stocks down to super critical levels, India is a dangerous market.

India has never had as low buffer as it is carrying now. At any point of time, over the last 6 years, India has carried stocks between 60000 tons - 25000 tons. This is perhaps the first time in recent history that India is carrying lessor than 10000 tons of stocks, and even that is sold overseas by way of contracts.

We feel that like all technicals, this would bounce back up with the same momentum. Kindly be guided by reason while making decisions and not purely sentiment. We have seen the best of buyers miss the best of opportunities, as they fall in fear.

Regards
Rawther