 "Monsoon progress a key parameter")
The monsoon season has been off to a good start this year. The welcome moisture has facilitated early planting of summer crops. Many areas witnessed drought or drought-like situation last year, which led to a spurt in prices of most commodities.
Due to this high-base effect, inflation of all agri-commodities will come down. Provided the good monsoon continues, food inflation will remain low at least for a quarter. It being an election year, the minimum support price (MSP) will most probably go up but the market price is expected to be down. Major kharif crops like oilseeds, cotton, sugar, maize and rice will be affected by a timely monsoon or lack of it.
Last season, due to drought in many cane growing regions, acreage shrunk. With very high sugarcane arrears, normally, this would shrink sharply. But due of attractive cane prices, acreage will only be marginally lower this year. A good monsoon would result in better yields and recovery. This year, sugar production is expected at 24.5 million tonnes (mt), while it is estimated at 22-23 mt in sugar season 2013-14. Due to high stocks, availability will be comfortable in 2013-14. Interestingly though, by September 2014, the stock-to-use ratio would be one of the lowest in the last 10 years. The current excess stock would have been consumed by then and and the effect of lower production will start showing in scarcity. Hence, prices should gain in the latter part of sugar season 2013-14. In the near term, prices should be Rs 3,000-3,400 a quintal.
Since many years, over 70 per cent of Indian cotton is finding its way to China. Chinese stocks are now 160 per cent of its annual requirement. Continued large imports by China remain doubtful. Instead, Chinese mills are importing cheaper cotton yarn (India is a top supplier). Better-than-expected export of cotton and cotton yarn have left India with tight ending stocks, which will support prices in the near-term. But humongous cotton stocks in China will overshadow global prices. Shankar-6, the benchmark Indian cotton, is unlikely to go beyond Rs 42,000 a candy (356 kg). New season cotton prices could fall sharply to Rs 36,000 a candy or below by December.
In 2013-14, China is expected to build state reserves for corn (maize). Indian corn has some quality-related issues to make its entry into China. But if world corn gets absorbed in China, Indian corn which is cheap, will easily find home elsewhere. While the above scenario plays out, prices could trade in the range of Rs 1,500-1,250 a quintal. Old crop maize trading at the upper end of the range and the new crop could come under pressure due to seasonal pattern. A large area and better yield could see the monsoon crop of rice increase to 95 mt, compared to 92.75 mt last year. Record crop prospects in India will bring down Indian and global inflation. Prices could remain around the MSP due to record production.
Higher market prices have encouraged farmers to increase area under oilseeds. Soybean acreage is expected to rise 10 per cent. Cotton seed production will also remain close to record. Initial reports suggest groundnut sowing in Gujarat is also sharply higher. Higher production and all-time high imports of edible oil will lead to correction in prices. The price of old crop soybean is expected to be Rs 3,605-4,050 due to year-end tightness. New crop prices could trade in the range of Rs 2,950-3,450.
After the current monsoon spell, a dry run, followed by rains in July, is necessary to assure good crop development.
Due to this high-base effect, inflation of all agri-commodities will come down. Provided the good monsoon continues, food inflation will remain low at least for a quarter. It being an election year, the minimum support price (MSP) will most probably go up but the market price is expected to be down. Major kharif crops like oilseeds, cotton, sugar, maize and rice will be affected by a timely monsoon or lack of it.
Last season, due to drought in many cane growing regions, acreage shrunk. With very high sugarcane arrears, normally, this would shrink sharply. But due of attractive cane prices, acreage will only be marginally lower this year. A good monsoon would result in better yields and recovery. This year, sugar production is expected at 24.5 million tonnes (mt), while it is estimated at 22-23 mt in sugar season 2013-14. Due to high stocks, availability will be comfortable in 2013-14. Interestingly though, by September 2014, the stock-to-use ratio would be one of the lowest in the last 10 years. The current excess stock would have been consumed by then and and the effect of lower production will start showing in scarcity. Hence, prices should gain in the latter part of sugar season 2013-14. In the near term, prices should be Rs 3,000-3,400 a quintal.
Since many years, over 70 per cent of Indian cotton is finding its way to China. Chinese stocks are now 160 per cent of its annual requirement. Continued large imports by China remain doubtful. Instead, Chinese mills are importing cheaper cotton yarn (India is a top supplier). Better-than-expected export of cotton and cotton yarn have left India with tight ending stocks, which will support prices in the near-term. But humongous cotton stocks in China will overshadow global prices. Shankar-6, the benchmark Indian cotton, is unlikely to go beyond Rs 42,000 a candy (356 kg). New season cotton prices could fall sharply to Rs 36,000 a candy or below by December.
In 2013-14, China is expected to build state reserves for corn (maize). Indian corn has some quality-related issues to make its entry into China. But if world corn gets absorbed in China, Indian corn which is cheap, will easily find home elsewhere. While the above scenario plays out, prices could trade in the range of Rs 1,500-1,250 a quintal. Old crop maize trading at the upper end of the range and the new crop could come under pressure due to seasonal pattern. A large area and better yield could see the monsoon crop of rice increase to 95 mt, compared to 92.75 mt last year. Record crop prospects in India will bring down Indian and global inflation. Prices could remain around the MSP due to record production.
Higher market prices have encouraged farmers to increase area under oilseeds. Soybean acreage is expected to rise 10 per cent. Cotton seed production will also remain close to record. Initial reports suggest groundnut sowing in Gujarat is also sharply higher. Higher production and all-time high imports of edible oil will lead to correction in prices. The price of old crop soybean is expected to be Rs 3,605-4,050 due to year-end tightness. New crop prices could trade in the range of Rs 2,950-3,450.
After the current monsoon spell, a dry run, followed by rains in July, is necessary to assure good crop development.
The author is head of research, Kotak Commodity Services Ltd