Monsoon revival pulls down farm commodity prices, kharif recovery seen


Revival in rainfall this monsoon season has pulled down the prices of agricultural commodities during the past three days on expectations of a recovery in kharif output and favourable climatic condition for the rabi harvest for 2020.

The benchmark Agri Index (NKrishi, earlier known as Dhaanya) of the National Commodity and Derivatives Exchange (NCDEX) declined by over one per cent on Wednesday following incessant rainfall across the country over the past two days. The index has posted around 2.5 per cent slump in the first three days of September, posing a risk of a further decline in farm prices.

The decline in the benchmark agri index indicates a broad sell-out in agri commodities, with traders and stockists expecting a recovery in kharif output this season against previous signs of a decline. The three-week delay in the south west monsoon, followed by spatial distribution with flood in some regions and drought in other major agri grown states, had threatened to bring down kharif output this season, pushing prices up.

Now, with the recovery in monsoon rainfall, from 30 per cent deficiency in the long period average (LPA) in June to a surplus of over one per cent in August, has raised hopes of a recovery in kharif output. September rainfall has renewed hopes of replenishing the underground water table and reservoirs, resulting in adequate soil moisture for higher rabi harvests.

“Sharp revival of southwest monsoon in August has proved beneficial for a number of kharif crops. Although crop damages have been reported in few areas due to excess rain, it is miniscule. Also, for rabi crops, including chana and mustard seed, good rain in September (as forecast by weather agencies), would provide better soil moisture for sowing. Besides, there are huge procured stocks of chana and mustard seed with government, and the prices of these two commodities will remain under pressure,” said Naveen Mathur, Director (Commodities and Currencies), Anand Rathi Shares and Stockbrokers.

Meanwhile, sowing of soybean and cotton is reported to be higher than last year. This would counter balance yield losses due to excess rain. Kharif pulses (moong) acreage is lower this season due to delayed rains, but harvesting of early crop has already started. Thus supply pressure is exerting a downward pressure on prices.

Harvesting of most kharif crops would commence by the end of this month and sentiment is negative for soybean, cotton and moong, said Mathur.

D K Joshi, Chief Economist at rating agency Crisil, however, believes that the impact of the recovery in monsoon rainfall on kharif output would depend upon the area under showers and the crop condition there. “But, the rainfall in August and September would certainly help rabi sowing,” Joshi added.

Joshi estimates lower paddy output this year on unfavourable monsoon rainfall in West Bengal, a major growing state.

India has had a record food grain output with an overall growth of 15 per cent the past three years. With this record output, the government has built huge buffer stocks, which could arrest price escalation.

“All major kharif crops are expected to remain subdued during next few weeks, as new crop arrivals will create supply pressure in the market. In addition, no sign of a trade deal between the US and China will continue to keep global stocks (soybean and cotton) higher for this year. Unless we here some good news from US-China trade negotiations, we expect agri commodities to remain under a bear grip in the near future,” said Ravindra V Rao, Vice President (Head -Commodity Research), Kotak Securities.


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