India. Grain and Feed Update. May 2014 May 8, 2014
MY 2014/15 wheat production estimate is revised lower to 94 million metric tons (MMT) based on the revised official planting estimates and reports of lower yield in major states. The government is unlikely to announce any new wheat export quota from government stocks in MY 2014/15 on expected weak procurement and concerns about a possibly below-normal 2014 monsoon.
IMD Forecasts below-Normal 2014 Monsoon
On April 24, 2014, the Indian Metrological Department released its long-range forecast of the 2014 monsoon season (June-September), predicting a below-normal monsoon. The 2014 monsoon rainfall is most likely to be about 95 percent of the long period average (LPA) with a margin of error of five percent. The IMD forecast stated that the warming sea surface temperatures over the Pacific’s equatorial belt indicates a 60-percent chance for an el Niño pattern to affect India’s 2014 monsoon season. The IMD report predicts a 23-percent chance of deficit rainfall (below 90 percent of LPA), a 33-percent chance of below average rainfall (90 to 96 percent of LPA), a 35-percent chance of average rainfall (96 to104 percent of LPA), and a one-percent chance of excessive rainfall (above 104 of LPA).
Typically, India’s southwest monsoon provides 70-percent of India’s total rainfall and irrigates 55-percent of its agricultural land. Normal and well distributed southwest monsoon is crucial for grain production in India, particularly for kharif (fall and early harvested) crops such as rice, corn, sorghum, millet and pulses. Good monsoon rains also support crop yield and reduce cost of production for irrigated crop land and rabi (winter) planted crops like wheat, corn, sorghum, barley and pulses. Production of most grains in Indian crop year 2013/14 was generally supported by above normal 2013 monsoon precipitation. A below-normal 2014 monsoon would adversely affect the planting prospects for the upcoming MY 2014/15 rice, corn, and other grains, and weaken MY 2014/15 grain production prospects.
MY 2014/15 Production Lowered
Post’s MY 2014/15 wheat production estimate is revised lower to 94 million metric tons (MMT) from 96 MMT (IN4023) based on the revised official planting estimates and reports of lower yield compared to last year in the major producing states. The Ministry of Agriculture has revised the MY 2014/15 wheat area to 30.6 million hectares compared to the provisional planting estimate of 31.5 million hectares based on the planted area reported by various state governments. Continued sporadic untimely rains through the first fortnight of April resulted in considerable delay (3-4 weeks) in wheat harvesting in the major producing states of northern India (Punjab, Haryana and Uttar Pradesh). The untimely rains and accompanying winds have also caused some damage due to lodging of the standing crop, which was ready to harvest. Earlier, untimely rains and hail in first fortnight of March caused some localized crop damage in parts of Madhya Pradesh and Uttar Pradesh.
Wheat harvest is almost over in Punjab, Haryana, and most of Uttar Pradesh, and in full swing in eastern India (eastern Uttar Pradesh, Bihar and West Bengal). The government’s crop cutting survey for assessing current year yields are being conducted in the major growing states and the early trends will be available by early June. Despite the extended growing season (low temperatures and untimely rains), market and field reports suggest that yield from the current crop is slightly lower than last year in the northern states. Market sources also report higher incidence of yellow rust and pests (aphids) compared to last year in the northern wheat growing belt due to rains and cloud cover during February through April, which may have also contributed to lower yield. Earlier, untimely rains and hail during first fortnight of March caused significant damage to the wheat crop in Madhya Pradesh. Based on the initial field reports, Post has revised MY 2014/15 wheat production lower to 94.0 MMT, which will still be the second-largest harvest in Indian history.
MY 2013/14 wheat area has also been revised higher to 30 million hectares based on the government final estimate by state for Indian crop year 2012-13 (July-June).
Procurement Starts on a Weak Note…
The government wheat procurement has begun on a very weak note due to the 3-4 week delay in harvest and ongoing speculation on the crop size. Total government procurement of wheat through April 29, 2014, was estimated at 18.2 MMT, significantly lower than 20.2 MMT last year during the corresponding period.
Wheat procurement in the major surplus states of Punjab and Wheat is in full swing, but likely to taper off by the second week of May. Despite some participation of private trade purchases in Punjab due to tax incentives extended by the state government to local millers, relatively high local taxes preclude any significant private purchases in Punjab and Haryana.
Relatively firm open market prices compared to the government’s minimum support price (INR 14,000/MT) have limited government procurement in most states. Procurement in the states of Madhya Pradesh and Rajasthan has been supported by the additional bonus of INR 1,500/MT given by the respective state governments. Procurement in the state of Uttar Pradesh has been negligible due to higher open market prices. Procurement will continue through June in most other states except Punjab and Haryana, depending on the movement of open market prices. Given the relatively firm open market prices, total government wheat procurement is likely to be around last year’s level, circa 25-26 MMT, significantly lower than the government’s procurement target of 31 MMT. Nevertheless, MY 2014/15 procurement will be sufficient to meet the wheat required for government’s Public Distribution System (PDS) for phased implementation of the National Food Security Act. However, if the procurement falls significantly short of the target, the government may reduce open market sale of wheat compared to last year.
Despite the arrival of the new crop, domestic prices have continued to rule relatively firm, hovering above the government’s MSP in most states. The local wheat prices in most producing states currently range from INR 14,227 ($237) to INR 16,085 ($268) per metric ton, well above the government’s MSP and additional bonus in some states.
Market prices are likely to ease as arrivals accelerate in May and June in most states, but will largely depend on the overall crop outturn.
Government-held wheat stocks as of April 1, 2014, are estimated at 17.8 MMT, more than 26 percent lower than last year, but still more than double the desired stock levels (4.0 MMT buffer and 3 MMT strategic reserves). Relatively higher offtake of wheat (domestic sale and exports) during the last quarter of the MY 2013/14 has resulted in lower than initially expected government wheat stocks. MY 2013/14 consumption has been adjusted to account for the change in the ending stock estimate.
With likely modest procurement of the upcoming wheat harvest, and higher offtake under the PDS implementing the National Food Security Act, MY 2014/15 ending stocks are likely to be drawn down further to 16.3 MMT.
Government Wheat Exports Taper…
The government’s parastatals have let three tenders in April at prices ranging $281.83 to $285.17 per MT FOB, but have not announced any new tenders. To date, the government has already let about 1.55 MMT of the 2 MMT quota announced in November 2013. The government is likely to monitor closely wheat procurement and international price movement when letting the tenders for the balance of 450,000 MT of the two-MMT quota.
Given the relatively weak procurement in the ongoing season and concerns about a possibly below-normal 2014 monsoon, the government is unlikely to announce any new quota in MY 2014/15. However, exports of wheat procured by private trade from the open market are likely to continue as the government has sufficient wheat carryover stocks from previous seasons.
.. Private Trade Begins Exports of New Season Wheat
Although no official or reliable industry figures are available, market sources report that the private trade has already contracted about 1.2 MMT of wheat for exports through June 2014 at prices ranging from $276 to $282 per MT FOB. Trade sources report that Indian wheat is currently competitive before the entry of Black Sea wheat in July. With the prices expected to ease further in the next few months, market sources expect exports to continue through July, after which export prospects will be largely driven by competitiveness of India wheat (international prices and value of Indian rupee vis-a-vis US dollar). However, exports of wheat to neighboring markets like Bangladesh will likely to continue through the season. Consequently, Post continues to forecast MY 2014/15 wheat exports unchanged at 3.0 MMT.
Provisional official trade statistics indicate that wheat exports for MY 2013/14 reached 5.5 MMT. With the wheat product exports estimated around 500,000 MT (wheat equivalent); MY 2012/13 wheat exports are likely to reach 6.0 MMT.
Procurement Lags Further as Prices Firm Up in April
Government domestic rice procurement at the MSP in the month of April fell further behind last year as the domestic prices firmed up further on strong exports. Government procurement on April 25, 2014, was estimated at 27.3 MMT compared to 30.5 MMT during the corresponding period last year, with procurement lagging in most states, except Chhattisgarh and Madhya Pradesh wherein the state government gave additional bonus over and above the MSP.
Expected higher production of rabi (winter planted) rice harvested from March through June may support some late season procurement. Consequently, MY 2013/14 procurement may reach 30 MMT compared to 34 MMT last year.
Strong export demand for non-Basmati rice continued to fuel domestic common rice prices. Currently, spot prices for common grade coarse rice range from INR 20,067 ($335) to INR 35,443 ($590) per ton in major producing states. Prices are likely to remain firm during May. Late season prices will largely depend on the progress of 2014 monsoon and the international price movements.
Indian rice exports have been very strong since the beginning of CY 2014 on relatively strong demand for non-Basmati rice, mainly from African countries and neighboring Bangladesh.
According to preliminary official and trade statistics, rice exports from January through March 2014 was estimated at 2.6 MMT, marginally higher than last year for the corresponding period, largely on strong demand for non-Basmati rice. Post continues to estimate CY 2013/14 exports at 10.0 MMT assuming no significant changes in the price parity of Indian rice in the international market