Report Highlights: 

The 2014 monsoon rainfall activity through June 25, 2014, has been significantly below normal in most parts of the country. If the monsoon does not recover by the mid-July, planting and production prospects for kharif crops, especially rice, corn and soybeans and some pulses, will be adversely affected. The government raised the minimum support prices (MSP) marginally for the upcoming 2014/15 kharif crops. Government procurement of wheat under the price support operation is likely to reach 28.0 MMT compared to 25.0 MMT last year.

General Information: 

Below-Normal 2014 Monsoon… 

After forecasting a ‘below-normal’ 2014 monsoon in late April, the Indian Meteorological Department (IMD) issued a second long-range forecast update for 2014 southwest monsoon rainfall predicting that the seasonal rainfall will be 93 percent of normal with model error of ± 4 percent. Northwestern India is set to receive 85 percent of normal rains, central India will receive 94 percent of normal while southern peninsula and northeastern India are forecast to receive 93 percent and 99 percent of rainfall, respectively, with a model error of ± 8 percent. 

The southwest monsoon arrived a week later than normal at the southern tip of Indian peninsula in Kerala on June 6, 2014, and has advanced slowly to cover most of India’s southern, eastern and northeastern states by the second week of June. The monsoon’s advance has stalled in central India since the third week of June and progress to western and northern India has been delayed by 1-2 weeks. Rainfall activity through June 25, 2014, has been significantly below normal in most parts of the country. With only 7 of the 36 weather subdivisions receiving normal rainfall, the cumulative rainfall during this year’s monsoon has been 40 percent of normal. 

… Kharif Planting Begins on a Weak Note… 

Indian agriculture is heavily dependent on southwest monsoon rains which provide about 80 percent of the country’s annual precipitation. With only about 45 percent of India’s cropped area irrigated, planting of most kharif (fall and early winter harvested) crops (rice, corn, other coarse grains and pulses, begins with the onset of monsoon. The weak onset of 2014 monsoon has delayed planting of kharif crops across the country. 

… Raises Concern for the Upcoming Crops. 

The slow progress and scanty precipitation of 2014 monsoon have been a serious concern to the farmers and policy makers. The window of opportunity for planting most kharif crops extends through July. The revival of monsoon in the next few weeks will be critical for transplanting of rice and planting of other kharif crops. Rice seedling nursery operations are largely unaffected by the weak monsoon as the nurseries are operated under assured irrigation. With the early forecast of a weak 2014 monsoon, farmers have reportedly delayed nursery preparation by 1-2 weeks, which does offer an additional 1-2 week window for transplanting. Nevertheless, planting prospects for kharif crops, especially rice, corn and soybeans and some pulses, will be adversely affected if the monsoon does not recover by the mid-July. 

Recovery of the 2014 monsoon with adequate and well distributed rains during July-September will be critical for achieving Post’s current forecast production estimates for rice, corn, sorghum and millet. Besides affecting planting prospects, rains during July-September are also critical for crop development even in the irrigated areas as they affect reservoir and ground water levels. Monsoon performance during August-October also affects rabi (winter planted) 

Support Price for Kharif Crops Raised 

On June 25, 2014, the government announced a modest increase in the minimum support prices (MSP) for the kharif crops of the upcoming Indian crop year 2014/15. The MSPs for paddy (unmilled) rice, sorghum and pulses have been raised marginally, while MSPs for corn and pigeon pea have been left unchanged. Market analysts report that food price inflation concerns of the new government may have influenced the modest change in the MSPs. 

The revised MSPs are unlikely to cause any major shift in the cropping pattern for the upcoming 2014 kharif season. If the monsoon recovers, most farmers will continue to plant rice to the government’s ‘rice and wheat’-focused food grain procurement system. Farmers also prefer rice with its higher ‘assured’ returns compared to coarse grains due to relatively stable yields and lower vulnerability to pests/diseases and climatic factors. 

WHEAT 

Government Procurement Over 

Government procurement of wheat under the price support operation has recovered in MY 2014/15 from the last year’s low. Total government procurement of wheat during the ongoing season is likely to reach 28.0 MMT compared to 25.0 MMT last year, but significantly lower than the government’s procurement target of 31 MMT and the record procurement of 38.2 MMT in MY 2012/13. 

… Stocks Ease 

The second consecutive year of lower-than-anticipated procurement and higher off take in the domestic and export market has brought the government-held wheat stocks significantly down in MY 2014/15. Government-held stocks as of June 1, 2014, are officially estimated at 41.6 MMT compared to 44.4 MMT at the same time last year, but more than 17-percent lower than the record stocks of 50.2 MMT on June 1, 2012. At the current pace of offtake, government wheat stocks on July 1, 2014, are forecast to come down to 39.8 MMT, which will still be nearly double the government’s desired peak stocks of 20.1 MMT (as of July 1). 

Domestic Prices Rule Easy 

Domestic prices continued to soften in June on steady arrival of the rain-delayed new crop and relatively weak international prices. 

Market prices in the states supplying wheat to private trade (Uttar Pradesh, Madhya Pradesh, Rajasthan, and Bihar) currently range from INR 14,100 ($235) to INR 14,810 ($247) per metric ton, above the government’s MSP (INR 14,000/MT). Domestic prices are expected to firm up from July onwards as market arrivals taper off. However, the government is likely to use its wheat stocks to control any significant escalation in domestic prices, especially on concerns of an impending below-normal monsoon and its potential inflationary effect on food prices. 

Exports to Slow Down 

With exports of government-held wheat coming to a halt in mid-May, exports demand for Indian wheat has slowed down since June due to appreciation in the value of the Indian rupee and relatively weak international prices. Wheat exports in the first two months of MY 2014/15 were provisionally estimated at 1.3 MMT. Market sources report that about 400-500,000 MT of wheat has been shipped in June, and about 200-300,000 MT will be shipped in July, mostly against the wheat contracted for exports during April/May. 

Exports are likely to slow down significantly from July onwards, mostly exports of milling wheat to neighboring markets like Bangladesh and Middle East countries (for Indian-style breads). Consequently, Post continues to forecast MY 2014/15 wheat exports unchanged at 3.0 MMT. However, exports prospects may change depending on the relative movement of domestic and international prices, and changes in the value of Indian rupee vis-a-vis U.S. dollar