Update 1: Rapeseed-Mustard Crop Production and Price Outlook in India for 2016

On 24 Jan 2016, we expressed our views on likely scenario of Indian Rapeseed Mustard production and prices in the light of weather disturbance and sown area progress  under the article with the name “Recent Weather Fluctuations can trim India’s Rapeseed-Mustard Production and spark the prices during 2016”. The link of the article was given below http://prasoonmathur.blogspot.in/2016/01/recent-weather-fluctuations-can-trim.html)

Since then, there is marked increment in the reports of sown area under this crop. Thus we provide below the updated information on the same and consequently we also revise our production estimates. The likely price scenario is also modified little bit accordingly.

Latest Sowing Progress of Oilseeds in India

The sown area under Rapeseed-Mustard has increased to 64.51 lakh ha as on 27^th Jan 2016 as against the 65.17 lakh ha area which was sown during year 2014-15.

Thus the sown area is now just 1% below from the last year’s figure on All India basis. However, the sown area is lagging behind by 3.64% in Rajasthan which is the leading state in terms of Area and Production of Rapeseed-Mustard in India.

The Table given below has been extracted from SEA of India website.

Pest & Diseases Scenario:

Due to changes in Temperature and other weather related conditions, the advisories have been issued to state Governments and CIPMCs for continuous monitoring of Yellow Rust diseases on Wheat crop in wheat growing areas of Haryana, Punjab, Jammu & Kashmir, Himachal Pradesh, Rajasthan and Uttar Pradesh along with the monitoring of Aphids and White rust on Mustard growing areas on mustard crop.

· Incidence of white rust in mustard crop has been reported in trace to low intensity in few villages of Sriganganagar district of Rajasthan; Anand, Kheda, Baroda, Ahemadabad, Mehsana districts of Gujarat and south district of Sikkim.

Source: Crop Weather Watch Group, MoA, India, dated 25 Jan 2016.

Production Assessment:

Thus based upon the above mentioned facts and figures, we provide below the revised production estimates for the Rapeseed-Mustard crop in India for the year 2016.

These estimates can further be revised depending upon the coming weather and crop progress reports.  

Thus, due to increment in the sown area as compared to the previous report dated 24 Jan 2016, we revise upward the Rapeseed-Mustard production estimate to 54 lakh tons for year 2016.  However, this production figure is down by around 6% from the previous year figure of 57.4 lakh tons of the Oilseeds Industry estimates (Please note that the Government estimates may differ).

Long Term Price Outlook of Rapeseed-Mustard for the Year 2016

Currently Prices of Rapeseed-Mustard (RMseed) in the Indian Commodities Market are hovering around Rs. 3900/quintals.

We have a BULLISH OUTLOOK for RMSEED for the Year 2016.

However, since some upward revision in the production estimates is made, the downside risk in the price levels may be seen in the range of 3550-3650 during Feb/March period which is the main arrival period.

The ideal strategy would be to ENTER the market at RIGHT TIME.

 Judging the right price of entry seems difficult.

Ideal Buying Period/Time in the Market:

We would prefer to start buying from February First week. Then gradually make averages on weekly basis till March first week or whenever price decline in the range of 3, 6 and 8 % is seen from the first buying level of Feb first week.

The long term upward Target seems near Rs. 5300/qtl during Oct 16 to December 16 period.

(Substantial reserve capital must be kept to meet out the MTM in the volatile market and avoid over leveraging)

In Soybean: Don’t follow World Market when You Trade in India

During last few years, Indian oilseeds trading community has seen high volatility in prices while the world market trend remained more or less steady in one direction. Those who believe that it is the CBOT that dictate the market sentiments in many commodities went wrong in case of soybean when it comes to trade in India.

On the one hand where since last four years, the soybean Prices at Chicago Board of trade (CBOT) have seen continuous fall to the extent of 40% till this December, Indian soybean market has gained around 14%.

Figure 1 shows the change in production and prices in the Indian and world market. Since 2011-12 to 2014-15, the soybean production fell by around 14% in India resulting into continuous prices rise to the extent of around 14% during same period.

On the other hand the soybean production at world level has seen significant jump of around 33% during last 4 years resulting in to 40%  fall in its price.

Thus we have seen a complete divergence in the production and price behaviour of soybean in  India from the world market.

We try to identify and explain why Indian soybean prices remained immune to the world market sentiments. Let us have a look at Table 1.

Some Observations from Table 1:

1. The soybean production keeps on falling for the straight 4th year. A production fall of 14% is seen in the last 4 years.This year (2015-16) too the production is likely to go down significantly. 
2. Due to fall in the production, domestic soybean oil production has also come down by around 19%.
3. Soybean meal exports to the various countries have fallen dramatically by around 83% in the previous 4 years. Year 2014-15 has proved to be a nightmare for the oilmeal export industry.
4. Soybean oil imports to the India have increased by 173% during same period.
5. World soybean production continued uptrend resulting into steady and consistent price fall in the world market. During last four years, the world soybean production rose by 33% while soybean prices fell by around 40%.

Thus, it is clear from the above facts, that despite bearish world market sentiments, Indian soybean market remained firm and in future too, overall sentiments are likely to remain positive with some intermittent fall owing to various other reasons excluding demand and supply.

In the Year 2015-16, the Indian soybean Industry experts feel that production may further decline and may remain near 87 lakh tons as against 91.7 lakh tons seen during 2014-15. Thus continuous shortfall in the production amidst increased domestic demand of soyoil and soymeal with continue to provide support to the soybean prices in India in medium term.

India impose very high import duty on oilseeds and oilcake (oilmeal) import into India to safeguard its own domestic industry. Currently the effective import duty on oilseeds and oilcake is 36.55 and 20.80% respectively in India.

Soybean is a rainfed crop grown in the Kharif season in India. Thus production fluctuates widely due to change in monsoon rainfall quantum and it's spatio-temporal distribution. Further the growing domestic demand by various industries like animal feed and FMCG companies keeps on supporting the prices of soybean in India.

Due to high domestic prices, the soybean processing Industry in India is passing through very tough time due to high disparity owing to high raw material cost. The Indian Industry has started loosing its export markets resulting into drastic decline in to soymeal export figures. The capacity utilization is at the lowest and many plants are close down or operating at very low capacity due to disparity in crushing and export.

The Solvent Extractors’ Association of India, in its press releases cites following main reasons of drastic fall in the soybean meal by India.  

1. High price of soybean in domestic market v/s lower realization for meal and oil resulted into drastic fall in crushing and export of soybean meal.

2. The export to Japan, Iran, Thailand, Indonesia, Taiwan and Vietnam drastically reduced due to disparity in export in these regions against severe competition from other origins including China and Argentina.

3. India lost Vietnam market for soybean meal due to stiff competition from other origins and increased availability from domestic crushing of imported soybean.

4. On wake of lifting sanctions, Iran shifted soybean meal buying from India to another origins. Currently India is out priced by US$ 100 against other origins in Iranian market.

5. Japan was big importer of Indian soybean meal being non GMO, however now started using GM soybean meal and buying from other origins.

On the edible oil import front, India’s import is increasing day by day as globally the prices of edible oil are historically low since 2008, and had affected the domestic players. The domestic oilseeds prices are high and the imports are quite cheap due to less import duty on the edible oils.

Lessons:

1. Very low domestic production leads to excessively higher prices in soybean; no matter world market is falling.
2. Domestic demand will grow day by day. Thus, till we don’t increase production or start importing soybean, the domestic prices are hard to come down significantly in long to medium term.
3. Soybean meal export and domestic edible oil manufacturing industry may come into severe crisis if steps are not taken to improve domestic supply of soybean in a planned way.
4. Soon, India may become net importer of soybean as well as soymeal and other meals if oilseeds production problems are not addressed adequately.
5. Soybean prices are still rising in India, despite the fact that world markets are having ample supplies. Just imagine what will happen if some point of time world’s soybean production decline in any year. Prices will shoot like anything.

Thus, while trading in Indian soybean market, just have a look at it's own fundamental factors rather than blindly following world market sentiments otherwise possibility of going wrong is very high because INDIA DOES NOT FOLLOW WORLD WHEN IT COMES TO TRADE SOYBEAN.

Good beginning is half done: Indian Kharif crop sowing progress analysis

Kharif crop sowing in India gradually picks up due to good monsoon rainfall till date in country as a whole.

However monsoon is yet to gather momentum in many parts of north and north –western India.

The latest data released by the Ministry of Agriculture, the kharif crop sown area has crossed 165 lakh hectares so far as compared to 134.18 lakh ha at this time last year.  Remarkable progress is seen in case of Pulses and Oilseeds where area increment is far ahead as compared to the last year’s figures. In Pulses this increment is around 80% while in case of oilseeds around 427% increment is seen.

Rice and sugarcane area has seen marginal decline.

The sowing of different crops is underway and will continue till July end. If monsoon remains fairly active and its spatial distribution also remain good then country can expect better production.

This is a matter of great relief that in the commodities like pulses and oilseeds the sowing progress is good because India is import dependent in many pulses and edible oils.

Monsoon Progress:

Till date the Indian monsoon rains have remained good enough. It is clear that majority of the regions have received normal /excess rainfall during 1-28 June 29, 2015 barring a few regions of Uttar Pradesh.

The actual cumulative rainfall is also fairly above the normal rainfall for the country as a whole.

Now a lot will depend upon the further progress of the monsoon during crop growth stage.

Figures Source: IMD, New Delhi

Impact Assessment: Deficit Monsoon likely to hit hard on Crop Production and Commodity Prices in India

The latest forecast of Monsoon rains in India by the Indian Meteorological department has worried the Indian farmers as well as the consumers. The goodwill of the government is also on stake as it will have an uphill task to contain inflation if the forecast come true this year.

This article analyses the previous trend in the monsoon rainfall, changes in production of commodities and wholesale price index to gauge the likely impact on the common man.

First of all let us highlight the main features of the Latest Monsoon Forecast for India for 2015 which was released by IMD on 2^nd June 2015.

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Ø Rainfall over the country as a whole for the 2015 southwest monsoon season (June to September) is likely to be deficient (<90 lpa="" of="" span="">

Ø Quantitatively, monsoon season rainfall for the country as a whole is likely to be 88% of the long period average with a model error of ±4%. [THAT MEANS AROUND 12% DEFICIENT RAINFALL]

Ø Region wise, the season rainfall is likely to be 85% of LPA over North-West India, 90% of LPA over Central India, 92% of LPA over South Peninsula and 90% of LPA over North-East India all with a model error of ± 8 %.

Ø The monthly rainfall over the country as whole is likely to be 92% of its LPA during July and 90% of LPA during August both with a model error of ± 9 %.

Ø  The rainfall over the country as a whole is likely to be 92% of its LPA during July and 90% of LPA during August both with a model error of ± 9 %.

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·            Thus, as of now, there is clear indication that this year’s monsoon is likely to remain deficient by around 12% on country level.

·            States like West UP, Punjab, Haryana, Rajasthan, Madhya Pradesh and Maharashtra are likely to be affected more than the other parts of the country. The deficiency may remain in the range of 15 to 10 percent in these states.

·            Last year too, country witnessed a 12% deficient rainfall. Thus this will be the second consecutive year which will witness less rains in the country.

·            This indeed is  a matter of worry despite the fact that the country has ample foodgrain buffer stocks with the government and Sugar supply is ample.  

Market react more on the future event rather than the current facts. Thus in spite of comfortable food grain availability, the possibility of commodities price rise has increased sharply.

Here we will see empirically what has happened during past years when such type of situation emerged. Based on that we will try to draw some conclusions about the likely production scenario and expected price rise for this year for some important commodities.

A :  IMPACT OF RAINFALL ON PRICES OF COMMODITIES

In India a vast part of the cultivable land is totally dependent upon monsoon rains. The monsoon rains are one of the most important factors that determine the production of crops. Thus supply and demand factors determine the prices.

Table1 and Fig. 1 present the trend in the rainfall departure and percentage change in the Wholesale Price Index in India for the last 9 years.

Observations:

1. From 2005 to 2008, not much deviation in rainfall from the normal range was seen. Thus prices in general (with some exception) have remained more or less stable or even declined in Cereals, Pulses, eggs, meats & fish, condiments and spices and sugar. However in Oilseeds the prices remained very high.
2. In Year 2009, where rainfall deficiency was very high (-21.8%), the immediate impact on prices of the commodities was seen. Prices of Cereals witness a moderate rise, while a significant jump in prices of Pulses, Vegetables, Eggs, Meat & Fish, Condiments & Spices was seen.
3. SUGAR PRICES ROSE EXCEPTIONALLY HIGH BY 48 %.
4. In year 2010 and 2011 monsoon rains recovered and were in surplus, the prices came down in cereals, pulses, and sugar.
5. In Year 2012, again prices rose substantially in Cereals, Pulses, oilseeds and sugar.

Inference:

• Thus prices of Cereals, Pulses, Oilseeds and Sugar have seen more and direct impact of deviation in the monsoon rainfall.

• The vegetables are perishable and nature and spices are mostly perennial, thus the impact of rainfall deficiency/surplus cannot be generalized. 

B: IMPACT OF RAINFALL ON PRODUCTION OF COMMODITIES

Table 2 presents the trend in the rainfall as well as the production of important commodities for the last 10 years. The %age change in the production with respect to the previous year is also given.

Observations:

1. The production years 2009-10, 2012-13 and 2014-15 have seen deficient monsoon rainfall in India. The extent of deficiency has remained in the range of  -21.8%,  -7.1% and -12% respectively in these years.
2. The production of Cereals, particularly Rice and Wheat, Pulses, Oilseeds and Sugar has seen significant decline in the deficient rainfall years. The extent of production decline has roughly remained in the range of 5-16% in these commodities.
3. In year 2014-15 which witnessed around 12% rainfall deficiency, the  significant production decline in Cereals, rice, wheat, Pulses and Oilseeds was seen.. Herver sugarcane area witnessed marginal increase.

Inference:

• Even a rainfall departure of around 10% from normal rains results in to production fall in the range of 5 to 15 Percent in many commodities.

• Given the fact that this year’s rainfall deficiency in the range of 12% (equal to last year’s range), we assume that production of cereals, rice, wheat, pulses and Oilseeds may reduce by -5. -4, -5, -10, -16 % respectively as compared to last year’s figure. [ i.e fall in production of these commodities may be at least in the same proportion as was seen during 2014-15].

• However, we expect that sugarcane production may decline by more that 5% as compared to last year’s figure because this crop requires more water and is largely grown in the North-west UP and Maharashtra where the expected monsoon deficiency is around 15%.

  

Conclusion:

• The agricultural commodities production is expected to decline straight in the second successive year due to weak monsoon rains. The extent of production fall may vary in the range of 5 to 15% among various commodities including cereals, rice, wheat, pulses, oilseeds and sugar. This figure may further rise if the  monsoon deficiency range further increases in the June – september period.

• The prices of agricultural commodities are likely to increase substantially during 2015-16 period due to less production and increased demand.

• Oilseeds and Pulses seems more vulnerable in terms of price rise. If sugarcane area substantially reduce this year then Sugar prices will start witnessing improvement and sugar will emerge a major commodity which will witness significant price rise in 2015-16.