Experts say no need to worry about lower crop on account of early monsoon deficit
Moneylife Digital Team 15 July 2011

There have been concerns about the possible impact on agri-commodities following an official report about lower than average rainfall so far

Lower rainfall in the first few weeks of the monsoon season has set off concerns over the possible impact on agriculture. But experts say that it might be too soon to predict anything either way.

The Indian Meteorological Department (IMD) said last week that the rainfall so far has been 4% below the 50-year average. Some brokerages have also talked about the rain deficit in important agriculture states and the shrinking of crop acreage.

"July-August is the peak monsoon period, and we have to wait at least till the end of July to see how the monsoon progresses to make any predictions about production or prices," said Sageraj Bariya, head of equity research firm Equitorial Industry Alternate. The deficit averages out at the national level, whereas production will depend on how the monsoons behave regionally, he said.

Some say that with stable market prices and expectations of good production, there is no need to press the panic button.

According to the IMD, the cumulative rainfall received for the country as a whole during the period 1st June to 6th July 2011 was 217.6 mm, which is 1% above the average.

The rains were delayed by 20 days in Gujarat, which is an important cotton producer. Still, a good yield is expected, despite the rainfall being 60% below normal. While the increase in cotton acreage may not balance out the shortage in production due to weak rains, Dhiren Sheth, president of the Cotton Association of India, said sowing is expected to pick up now. Despite a late harvest, there are more chances of good production. The Cotton Advisory Board has estimated the production for 2010-11 at around 31.2 million bales.

Sugar has seen a significant rise in terms of cultivation. Reuters news agency reported an increase in the acreage by 220,000 hectares to about 5 million hectares as on 17 June, from that in the previous year. The estimated output in 2010-11 was 24.2 million tonnes, while a bumper production of 6.5 million tonnes is being estimated for the year. While the government recently allowed the export of 5 lakh tonne of sugar, the markets are expected to see a slight rise in prices.

According to the Ministry of Agriculture, the procurement of wheat as on 8 July 2011 was 280 lakh tonne, higher than the 224.80 lakh tonne up to the corresponding period last year.

Rice also saw increased procurement of 318 lakh tonne as of the same date, compared to 296.77 lakh tonne in the previous corresponding period. The government is holding massive stocks of rice, thus prices are unlikely to surge. The kharif crop of wheat, on the other hand, may suffer severely due to lower rain.

Despite an increase in the sowing area for pulses and oilseeds, there is a possibility of a shortage. The western states, which are chief producers of oilseeds, have also had lower rain. In pulses, a surplus in lentils from the previous year could help put a cap on the prices.

"A 4% deficit, at this time, is not earth-shattering. We should wait and see how the monsoon behaves in the next couple of weeks," an analyst said. "If the deficit persists till the end of July, it will be difficult to make that up in one month. But inflation is another important factor that would determine prices."

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