Since early 2006, cardamom prices have been on an upward trajectory. As the harvesting season ends, there are reports of lower arrivals in the mandis in Kerala, a key cardamom-producing state. Prices of the aromatic spice have already touched a record high of Rs 1,000 per kg. While demand for spice has been consis-tently on the rise in India, the key reasons for the bullish trend in prices during the last two-three months is higher export demand and fall in production. Since mid-October, when festival demand started picking up, especially in North India, the rates have been shooting up. The major producers of cardamom are Kerala (70 per cent), Karnataka (20 per cent) and Tamil Nadu (10 per cent).

However, Ajitesh Mullick, incharge of agri-research at Religare Commodities, believes that the main reason for the rise in prices is the reported fall in production in Guatemala, where floods in cardamom growing areas have reportedly affected the crop. Reports indicate that production in the Latin American country declined to 14,000-15,000 tonnes in 2009 from 19,000-20,000 tonnes in 2008.

In India, too, production is expected to fall to 10,000-11,000 tonnes in 2009 compared with 12,000-13,000 tonnes last year. In 2008-09, India exported 750 tonnes of cardamom, which led to a lower carryover stock for the commodity this year. As a result, with expectations of lower production in India and Guatemala this year, the prices have shot up.

On the upside, since the Indian stock is of better quality, there are reports of increased export demand for the Indian product despite its higher costs. Also, the fall in production in Guatemala has increased export demand from here.

Meanwhile, cold weather and low rainfall in cardamom-growing areas in Kerala have affected productivity. Dry weather last summer and heavy rains in August also affected the crop. Traders, however, expect some showers in the growing areas, which may have a positive impact on the crop that has reportedly seen delayed sowing this year.

According to Vibhu Ratandhara, assistant vice-president at Bonanza Commodity Broker, “From the investment point of view, cardamom might give good returns till the first quarter of 2010 due to strong fundamentals, but for the medium-to-long term view, there is need to analyse the sowing and monsoon patterns during February-March to July-August. However, India is the only exporter of quality cardamom in the globe, and after the consistent rise seen in global demand, prices are likely to remain bullish for the short-to-medium term”.

In the short term, however, one may witness some correction in prices as the rates have continuously moved up over the past three months. Within three months, MCX January contract has shot up from Rs 750 to touch Rs 1,300.

“Some correction is possible in the short term, but expectations of demand picking up at the lower levels may provide support to the rates from a medium term view. The January contract has support levels at Rs 1,200 and Rs 1,140 with resistance levels of Rs 1,340 and Rs 1,480” Religare’s Mullick adds.

Analysts believe that after a strong run-up in past 20-days, some profit booking can’t ruled out. But looking at the strong fundamentals, sentiments will remain bullish, at least till there is clarity about the sowing scenario. As arrivals are expected to shrink as the country approaches a dry period, any emergence in export and domestic demand may again fuel cardamom prices in the short term, they add.