Hot, dry weather in the U.S. cornbelt and parts of Russian wheat growing areas and neighboring countries have attracted attention, but a less active than normal monsoon rainy season in India should also be closely watched. Rains for the June and July period have been 81 percent of the long-term average for the entire country and led to reduced planting of summer crops. 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.
Monsoon season provides on average 70 percent of India’s annual rainfall. About 55 percent of India’s cropland depends on rainfall, and rain on irrigated croplands improves yields and lowers operating costs. India is divided into four geographical regions – Northwest, Central, South Peninsula and East and Northeast India. The Northwest region is normally the driest area of the country and this year has received the smallest percentage of normal monsoon rains, but rains have improved recently. The East and Northeast is a wetter region and has had the closest to normal rains. The Central and South Peninsula regions are normally wet and have been significantly drier than normal, but the Central region has been receiving more rain lately.
The U.S. Agricultural Attaché reported in late July that summer crop plantings were down 9 percent from normal plantings for that time of year. The biggest decline was in coarse grains, down 24 percent, to 24 million acres. Rice is the largest summer crop with 37 million acres planted, down 6 percent. Oilseed plantings of 27 million acres were almost normal. Cotton plantings were 21 million acres, down 7 percent, and sugar cane plantings were up 11 percent at 13 million acres.
Cotton acreage is expected by the Attaché to be 26.2 million acres, down 13.0 percent from the record large 30.1 million acres last year. The dry weather will likely limit production to 23.4 million bales (480 pounds each) compared to 26.5 million bales last year. Exports for 2012/13 are projected at 4.2 million bales, down from 10.0 million bales in 2011/12 and 6.0 million bales in 2010/11. Indian exports this year are 23.0 percent of world exports, and provide 60 percent of the 6.7 million bale increase in world cotton trade in 2011/12.
India has been a major player in the rice market this year as it moved excess inventories that have accumulated over several years with projections to export 8.0 MMT of rice, up from 4.6 MMT last year and 2.2 MMT each in 2008/09 and 2009/10. It is expected to be the number one exporter this year accounting for 22.5 percent of world trade. If production is smaller due to drought, the government will likely limit future exports until the availability of new crop supplies can the assessed.
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