What is in this article?:
- Agriculture markets watching Indian monsoon
- Grain yields
- The early August forecast from the India Meteorological Department is for rainfall for the entire June to September monsoon season to be less than 90 percent of average.
India is also an exporter of sugar but market participation is highly variable. It exported 6.0 MMT in 2007/08, 11.8 percent of world trade, but in the following two marketing years exported about 225,000 metric tons each year. Exports were 3.9 MMT in 2010/11 and 2.6 MMT in 2011/12, 4.5 percent of world trade. India’s sugar production in 2011/12 was 28.3 MMT raw value, just exceeding the previous high in 2007/08. Reduced exports are not likely to have much impact on the 2012/13 marketing year, but sugar cane is a perennial crop and lower plantings this year would lower output for several years. Plantings had been expected to be up 3.0 percent to 13.0 million acres due to strong cane prices.
Coarse grains such as corn, grain sorghum and millet are largely non-irrigated crops grown in central and northwest India. Inadequate rains have delayed planting and could have a serious impact on yields. According to estimates by the Foreign Agricultural Service of USDA, in 2011/12 India produced 21.3 MMT of corn with 3.8 MMT, 17.8 percent, moving into export markets, 3.9 percent of world corn trade. Losing that volume of exports would normally not be an issue for the world corn market, but with the short U.S. crop every bushel will matter. India exports an insignificant amount of grain sorghum.
Other crops like peanuts, soybean and pulses are all monsoon dependent. While rain in some areas prompted early planting of soybeans, peanut planting has been delayed, reducing the overall area planted to oilseeds. When monsoon rains advanced over central India, soybean planting probably increased sharply. Continued rains in August are critical for crop development. In 2011/12 India harvested 25.4 million acres of soybeans producing 11.0 MMT, with none exported. Of the 7.8 MMT of soybean meal produced from crushing soybeans, 4.5 MMT were exported. That amount will likely decline in 2012/13. All of the soybean oil produced, 1.7 MMT in 2011/12, is consumed domestically, and another 0.9 MMT imported. India also imported 7.3 MMT of palm oil in 2011/12. Any shortfall in domestic vegetable oil production will likely be offset by imports, unless market prices are high enough to squeeze India consumers out of the market.
Agriculture is large enough that drought could lower India’s GNP 0.5-1.0 percent to about 6.0 percent, accelerate the increase in the Wholesale Price Index to 8 percent, increase the fiscal deficit as a percent of GDP from 5.8 percent to 6.2 percent and reduce foreign investment. Agriculture accounts for 17 percent of GDP and employs 52 percent of the workforce. The Wall Street Journal reports that farm income declines may reduce the price of gold as farmers can afford less gold for dowries for daughters and other relatives and wedding gifts.
India is not expected to become a major importer of grains, oilseeds or sugar based on current conditions. Sugar carryover stocks should be ample at 6.5 MMT. The Agricultural Attaché reports that food grain stocks (rice and wheat) on June 1, 2012 were a record 82.4 MMT, up 16.0 percent from a month earlier and 25.6 percent higher than last year’s June 1 level of 65.6 MMT. The government target level for July 1 stocks is 31.9 MMT. Inventories included 50.2 MMT of wheat, 32.1 MMT of rice and 0.1 MMT of coarse grains. The lack of grain storage space is the major reason that India has been an aggressive seller of rice for the last year. India is likely to import more vegetable oils to make up for any production shortfall. A slowdown in Indian exports would affect world markets this year due to the lower production in other regions.
Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology