Prices of most agri commodities moved up in futures trading on the National Commodity & Derivatives Exchange (NCDEX) amid concerns of lower output in the ensuing kharif season on prediction of lower monsoon rainfall this year.
While soybean price moved up by 3.23% to trade at Rs 3,900 a quintal, chana and sugar (M) surged by 2.29% and 1.45% respectively to quote at Rs 3,968 a quintal and 2,453 a quintal respectively. Similarly, coriander and guar seed prices firmed by 3.07% and 2.84% to sell at Rs 10,544 a quintal and Rs 4920 a quintal respectively. The price rise is set to percolate in spot market as well.
The Indian Meteorological Department (IMD) forecast India's southwest monsoon to remain below long period average (LPA) at 93% this year with +- 5% of variations. Interestingly, the weather bureau has lined up three probabilities – 28% for a normal monsoon, 35% for below normal and 33% for deficient. Significantly, IMD did not predict an El Niño event.
"The price rise is an immediate impact which may start correcting going forward. Logically, agri commodities prices should move up on fears of lower production on weak monsoon. But, that did not happen last year when rainfalls were predicted lower. In fact, food price inflation came down this year despite lower production of food grains reported last year," said Madan Sabnavis, chief economist, Care Ratings.
| Statewise crops fear to be affected due to weak monsoon rainfalls | |
| State | Commodities |
| Madhya Pradesh | Chickpea, wheat, isabgul, mustard, lentil, pigeon pea |
| Maharashtra | Chickpea, onion |
| Gujarat | Cumin, chickpea |
| Telangana | Turmeric, safflower, onion, chillies |
| Andhra Pradesh | Rice, pulses, maize |
| Karnataka | Chickpea, safllower |
| Bihar & Jharkhand | Oilseeds, pulses |
| Assam & Meghalaya | Boro rice, potato cabbage |
| Manipur & Tripura | Boro rice, maize |
| Source : Crisil | |
With 88% LPA, kharif food grains production was estimated 3.81% lower at 123.78 million tonnes.
A second straight year of weak monsoon will decrease the efficacy of India's irrigation ecosystem and hit agricultural output and farmers adversely. To add to this, unseasonal rains since early March have already had a negative impact on many crops. A deficient monsoon will shave off 50 basis points from India GDP forecast of 7.9% for fiscal 2016, forecast Crisil in its latest report.
There will be a chain reaction: agriculture output will fall, causing farm incomes and rural demand to decline; there will be spill over impact on industry from higher cost of agricultural inputs; government will be under pressure to increase minimum support price (MSP), and food prices will turn volatile. CPI inflation, where nearly 40% weight is for agriculture-related products, could rise about 50 basis points above our current forecast of 5.8% for fiscal 2016. That will mean the Reserve Bank of India's inflation target of 6% by March 31, 2016, gets breached in the very first year of adoption of the new monetary policy framework. Also the RBI will have less leeway to continue its current easing cycle, stated the report.
Earlier, Skymet Weather Services had forecast rainfall at 102% of the LPA. The private-sector forecaster also does not expect the dreaded El Niño condition to play out this year, but climate researchers abroad are predicting enhanced possibility in 2015. The condition, which typically occurs at irregular intervals of three to five years, weakens the Asian monsoon, often causing drought in north-west and central India and heavy rainfall (or even floods) in north-east.
"If El Niño indeed plays out, it will be for the second straight year. And this time, the impact on agricultural output will be greater compared with last year. El Niño conditions impact spatial distribution of rainfall, causing floods in some parts and drought in others. After last year's weak monsoon, India's north-west region has lesser capacity to withstand another inadequate spell of rains," it added.
Prices of agri commodities have seen an upside which was restricted due to high inventory from last year. For over two months, agri commodities have seen an upside due to unseasonal rainfalls and hailstorms in March this year.
"We expect a further strong upside movement for agri commodities this year," said Jayant Manglik, President (Retail Distribution), Religare Securities Ltd.
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