In follow up to our last report, the crop areas planted in August (mainly western Rajasthan and adjoining areas in Pakistan) needs rain in the next 1-2 weeks (sooner the better). The forecast for dry weather has stimulated a bullish sentiment. Stockists and speculators are controlling the market and planning their moves base on weather developments. The extent of the second round of rainfall and international market response will probably be the major factors influencing the next price trend. US frac demand remains subdued.
Reports note that the standing guar crop is progressing well. As with all years and excluding the irrigated areas the bulk of the guar crop is planted in stages depending on the initial rainfall. Ideally, the crop as a whole now needs cycles of 1-2 weeks of relatively drier weather followed by periods of widespread rain to promote a healthy yield. Speculators and stockists are reported to be active.
As per previous guar market reports, planting is progressing in the main areas. Some areas like western Rajasthan (India) and Sindh (Pakistan) are just receiving the planting rains and sowing is expected on commence shortly. Early reports suggest normal planting in Pakistan but an estimated 40-60% reduction in some areas of India when compared to last year. Naturally, the new guar crop needs favorable weather through harvest to see matching yields.
On the surface the reduction appears alarming, but 1)the largest area (Rajasthan) is expected to be normal planting and 2) if yield from the last crop was anywhere close to 2.38 million metric tons of seed as per the attached Nielsen report then a 50% reduction will still result in a “normal” size crop based on long term averages. Guar crop estimates are always a little sketchy, but taking the report at face value the 2.38 million metric tons of guar seed is the largest guar crop in history and capable of producing almost 600,000 metric ton of split / powder. i.e., two year supply at the current demand level which includes anemic demand from USA Frac. However, it has been my experience that guar seed has a way of disappearing over time. The methodology to estimate planted acreage and yield is weak. The methodology to count bags of guar seed arriving to market at the time of harvest and extrapolating the crop size is only marginally better. India “guar” export statistics (consumption) are inconsistent.
We would expect that weather, demand and speculation will keep the markets in an erratic mood for the next few months. It would appear that the large supply of seed and relatively weak demand will help keep price movements in check.
The Monsoon continues to advance over the guar areas and rain is reported and forecasted for the coming weeks. The market reports that the combination of relatively early monsoon rains and persistently low guar seed prices are supporting the farmers desire to decrease guar acreage in favor of better priced crops like pulses, cotton, oilseeds, etc… Some guestimates put the decrease at 50%. The IndoPak markets opened the week with spot and forward guar positions trading at a premium over last week. At this early stage, believe it is nothing more than wishful thinking as traders are trying to promote the expectation of higher guar seed prices next year.
IndoPak weather reports remain favorable for the guar areas.
As per the IMD today, “Conditions are becoming favorable for further advance of southwest monsoon in some more parts of north Arabian sea, Gujarat, East Rajasthan, remaining parts of Himachal Pradesh, Uttarakhand, West Madhya Pradesh, Uttar Pradesh and most parts of Punjab & Haryana, entire Chandigarh & Delhi and some parts of West Rajasthan during next 3 days.” (Bold print are guar areas.)
Since, 2005, the Kerala onset date has ranged from May 24 – June 10. Sometime in June the INDIA METEOROLOGICAL DEPARTMENT is expected to issue a detailed long term weather forecast for the season.
June 1 is the historical average onset date of the monsoon over the southern state of Kerala. June 10 is the historical average arrival date in Mumbai, the financial center of India.
Other important benchmark dates regarding the IndoPak guar crop are June 15 (southern edge of Indian guar area), July 1 (Jodhpur), and July 15 (eastern edge of Pakistani growing area). May and June are the time of pre-planting rains. July is pre-planting rain and/or monsoon planting rains. The latest planting date is early-mid August.
Guar gum, or guaran, is the primary product of guar grains. The guar seeds are dehusked, screened and milled to obtain the gum, and is typically produced as an off white, prolix powder. Here are three things you didn’t know about guar gum:
- India is the largest producer of guar gum, with an annual produce of 2.5-3.5 million tons, constituting about 80% of the global production. Other principal areas favoring guar gum’s growth are Pakistan, the US, Australia and Africa.
- Guar gum is used in gluten free ice cream as it reduces ice crystals comprehensively by slowing mass transfer across the solid/liquid alloy. It is also effective for making husky pastes without turning them into a gel since it is a hydrocolloid, which is able to thicken hot and cold liquids, prepare heated gels, light froths as an ointment stabilizer. It can also be used for sauces, cottage cheese, frozen desserts, soups and yogurt.
- Guar gum is used as a waterproofing agent mixed with other chemicals in the explosives industry. It is also used in hydraulic fracturing or fracking, i.e. for extracting shale oil and gas. 90% of India and Pakistan’s guar gum produce is used by the extraction industries for this process.
These are 3 things you probably didn’t know about guar gum, but now you can see how beneficial the substance is for multiple purposes.
Conditions continue to favor the buyer. It appears the IndoPak guar market will have little leverage to significantly increase price for long periods of time given the outlook for abundant raw material supply, excess frac gum manufacturing capacity and poor USA O&G frac demand. However, it should be noted that frac gum plants continue to shut down and the amount of “excess” capacity is shrinking.
We have reviewed US guar imports for 4Q2015. There was 30,000 mts of guar imported for all applications. Of that, 25,000 mts (8,333 mts per month) can be reasonably isolated to the O&G frac application. As you may recall, O&G frac imports averaged during the boom closer to 25,000 mts per month. There is talk in the industry about re fracking old wells which might offset some of the lower guar usage due to the predicted rig count decline in 2016.
Please balance our opinions and comments with others.
Guar is a member of the pea family which is cultivated both as fodder and as a green veggie. Over the years, the actual vegetable has gained added significance despite not being part of the staple diet. The reason for this is the emergence of guar gum. Yes, the gum extracted from this plant is being used all over the world in a wide range of industries. This multipurpose substance is in high demand. So, how did guar gum come about?
Initially, guar was used primarily for feeding cattle. The vegetable is a rich source of protein and fodder and cooking were its two main uses. It was in the mid 1940s, just as the Second World War drew to a close, that guar gum came into common use. At that time, the paper and textile industries used gum which was extracted from locust bean. However, the war had diminished reserves of the gum and the industries sought an alternative. Guar gum was suggested as a replacement and it was in 1953 that the technology for extracting it became commercially available in the US as well as India.
This means that it took close to a decade for technology to catch up with the demand. Over the past six decades in a bit, guar gum has grown in popularity and is one of the most widely used substances today. Owing to its wide range of applications, it is used in industries as diverse as food and textile. Even the slightly niche items in the food industry, including baked goods and ice creams, use guar gum as an agent for thickening or enhance the texture.
Despite there being no major breakthroughs in the substance itself, guar gum continues to enjoy tremendous popularity and there is no reason why this demand shouldn’t stay high in the future.
For a substance that has only been used widely for six decades, guar gum is extremely popular. After the Second World War, when industries in the West faced a shortfall of locust bean gum, which was at that time used widely in the textile and paper industries, guar gum was introduced as an alternative. The technology to extract guar gum from the guar plant was developed around that time as well and was made available commercially in 1953. Since then, guar gum has been used extensively in the manufacturing and production sector all around the world.
So, you may be curious where this substance is produced and more importantly, how it is produced. The guar bean is grown primarily in the US, India, Australia, and Pakistan, in addition to some parts of Africa. India is the largest producer of guar, with around 3 million tons produced annually, followed by Pakistan at 0.25 million tons. From there, the guar is transported to facilities for converting into guar gum. Again, India is a major producer of guar gum followed by the US. The substance is then shipped around the world, wherever needed, as it is used in a number of industries.
The extraction technique for the gum depends on the purpose for which the guar gum will be used. For instance, the most widely used technique involves several steps, including roasting, polishing, and also sieving. On the other hand, guar gum used in the food industry is manufactured over a number of stages, as it has to be safe for consumption by the end user. All in all, the techniques vary based on the purpose for which the guar gum will eventually be used.
So, you now have a clear idea of how guar gum is produced and from which regions it is shipped around the globe.