Highlights

Post continues to forecast MY 2016/17 wheat production at 88 million metric tons (MMT) based on the initial harvest reports from the major producing states. Due to the timely harvest, government procurement through third week of April 2016 was nearly three times last year procurement. MY 2015/16 rice exports estimated marginally lower at 8.5 MMT on weak export demand for coarse rice.

IMD Forecasts Above-Normal Monsoon

On April 12, 2016, Indian Metrological Department (IMD) released its first long range forecast for the 2016 Southwest Monsoon Season (June-September), predicting an above normal monsoon in 2016 on expected weakening of the El Niño weather pattern in the Pacific Ocean. Historically, a strong El Niño weather pattern in the Pacific Ocean caused below normal monsoon precipitation in the Indian sub-continent. IMD reports that the El Niño is likely to weaken during the first half of the monsoon season (June-July) and ENSO neutral conditions are likely to get established thereafter. Consequently, the 2016 monsoon rainfall is likely to be about 106 percent of the long period average (LPA) with a margin of error of five percent. IMD forecast predicts a 30-percent chance for average rainfall (96-104 percent of LTA), 34-percent chance of above normal rainfall (104-110 percent of LTA), 30-percent chance for excessive rainfall (above 110 percent of LTA) and only six percent chance of below normal rainfall (below 96 percent of LTA). IMD will update the forecast in early June based on the factors potentially affecting monsoon precipitation, including the actual status of El Niño.

India's southwest monsoon provides 70-percent of the country's annual rainfall and provides soil moisture for cropping in more than 55 percent of the unirrigated cultivable land. The two consecutive below normal monsoon rains in 2014 and 2015 adversely affected production of most grains in the last two marketing years, but is likely to recover in the upcoming MY 2016/17 on forecast above-normal 2016 monsoon. However, well distributed southwest monsoon is crucial for planting and yields of most grains, particularly for kharif (fall and early harvested) crops such as rice, corn, sorghum, millet and pulses. Good 2016 monsoon rains will also support crop yields and reduce cost of production for crops in irrigated areas and rabi (winter) planted crops like wheat, corn, sorghum, barley and pulses.

WHEAT

India: Commodity, Wheat, PSD

Wheat

2014/2015

2015/2016

2016/2017

Market Begin

Apr 2014

Apr 2015

Apr 2016

Year

India

USDA

New Post

USDA

New Post

USDA

New Post

Official

Official

Official

Area Harvested

30473

30473

30600

30600

0

29400

Beginning Stocks

17830

17830

17192

17192

0

14530

Production

95850

95850

86530

86530

0

88000

MY Imports

51

51

500

525

0

1000

TY Imports

273

273

500

300

0

1000

TY Imp. From US

0

0

0

0

0

0

Total Supply

113731

113731

104222

104247

0

103530

MY Exports

3409

3409

1000

1000

0

400

TY Exports

1817

1817

650

650

0

400

Feed and Residual

4500

4500

4200

4200

0

4500

FSI Consumption

88630

88630

85830

84517

0

87500

Total Cons.

93130

93130

90030

88717

0

92000

Ending Stocks

17192

17192

13192

14530

0

11130

Total Distribution

113731

113731

104222

104247

0

103530

Distribution

MY 2016/17 Production Forecast Unchanged

Post continues to forecast MY 2016/17 wheat production at 88 million metric tons (MMT) from 29.4 million hectare based on the initial harvest reports from the major producing states. Despite the initial dry conditions, low temperature during most of March and April supported grain setting in the standing crop. Wheat harvesting began on time in most states unlike previous years where harvest was delayed by 2-3 weeks due to untimely rains and/or extended winter. Wheat harvest got over in Gujarat, Rajasthan and Madhya Pradesh by early April, nearly over in Punjab, Haryana and Western Uttar Pradesh and is currently in full swing in eastern India (East Uttar Pradesh, Bihar and West Bengal) to be over by first week of May. Despite some speculation about yield likely to be affected by some localized hailstorm in early April and relatively early rise in temperature compared to previous years, Post field travel to the major wheat producing states of Punjab and Haryana suggest prospects for near-normal yield (historical 4-year average excluding adverse weather affected MY 2015/16), but significantly higher than last year's untimely rain affected wheat harvest. Market sources are speculating on the current year yield realization in Madhya Pradesh, Uttar Pradesh and other wheat growing states.

The early results of the government's crop cutting surveys for assessing current crop yields are expected to be available from early June. Post will continue to monitor the harvest reports from field sources. At this stage, Post continues to forecast MY 2016/17 wheat yield at 3.0 MT/hectare (vs normal yield of 3.1 MT/hectare) and production at 88 MMT. The industry continues to speculate on the size of the upcoming wheat crop from 81 MMT to 85 MMT against the government's second advance estimate of 93.8 MMT. The government's third advance estimate is likely to come out in the first fortnight of May wherein they may revise the wheat numbers.

Procurement Starts on a Strong Note

Due to the timely harvest in the major wheat growing states, government procurement is significantly ahead of last year (untimely rain delayed/affected harvest). The total government procurement of wheat through April 22, 2016, was estimated at 15.6 MMT, nearly three times last year procurement during the same period. The quality of new crop wheat is good compared to last year's rain damaged wheat wherein the government had to relax the quality standards (about 70 percent wheat procured under relaxed standards).

Wheat procurement in the major wheat surplus state of Punjab and Haryana is in full swing but is likely to be over by end of April, nearly two weeks ahead of last year. Relatively high local taxes preclude any significant private sector purchase of wheat in Punjab and Haryana, except for some wheat purchase by Punjab millers due to tax incentives. Market sources expect that the total government procurement of wheat in the two states is likely to be higher than last year on expected higher production. Despite relatively strong early season procurement in other states, relatively firm open market prices compared to the government's minimum support price (INR 15,250/MT) are likely to slow down government procurement in most states. Procurement will continue in most states (except Punjab, Haryana and Rajasthan) will continue through June, but the procurement volumes will largely depend on the open market price movement. Assuming continued firm open market prices, government procurement is likely to be slightly above last year's 28.1 MMT, significantly lower than the government's target of 30.5 MMT but sufficient to meet the government's wheat requirement for Public Distribution System (PDS) and other welfare programs (24-25 MMT).

Prices Firm

Despite the timely and sufficient arrival of the new crop, domestic prices have firmed up in April due to continued speculation on the size of harvest and relatively strong domestic demand as local mills seek to cover their requirement from open market. The wheat prices in most of the wheat producing states currently range from INR 15,200 to 16,050 per metric tons, hovering above the MSP in most states.

With the extension of the 25 percent import duty on wheat precluding prospects for imports and suspension of the government supplies of wheat under the open market sale scheme (OMSS) from April onwards, most of the local mills are covering their requirement for the next three month through open market purchase. Market prices are likely to ease as arrivals accelerate in other states in May, but the price movement in the next few months will largely depend on the overall production realization. However, prices are unlikely to rise significantly as government can intervene to control the prices by lowering import duty or releasing additional wheat under the OMSS given sufficient supplies (14.5 MMT opening stocks plus 28.2 MMT forecast procurement).

Stocks Raised

Relatively lower than expected offtake of wheat through the PDS and OMSS in the last quarter has resulted in higher than initially expected MY 2015/16 ending stocks. Government-held stocks as of April 1, 2016, are estimated at14.53 MMT (against the initial expectation of 13.2 MMT), nearly double than the desired stock levels of .5 MMT. MY 2015/16 consumption has been revised lower to account for the increase in ending stocks. MY 2016/17 ending stocks has also been forecast higher to 11.1 MMT from 10.0 MMT forecast earlier (IN6033).

Trade

The government's decision to extend the 25 percent import duty from March 31, 2016 to June 30, 2016 has adversely affected the import prospects. At the current price parity for Indian wheat vis-a-vis wheat from other origins, Post continues to forecast MY 2016/17 imports at 1.0 MMT as the imports are likely to be limited to higher quality wheat for blending purpose by southern millers at the current duty level.

However, import prospects can improve if the government lowers the import duty or the domestic prices increase significantly.

Latest provisional import figures for the period April 2015 to February 2016 estimate wheat imports at 513,400 MT as wheat imports have tapered off in the last two months, and the MY 2015/16 imports are estimated to reach 525,000 MT. Based on the estimated exports during July 2015 through February 2016 (215,000 MT) and expected lower imports in the next quarter, Trade Year 2015/16 imports are revised lower to 300,000 MT.

Provisional official figures estimate wheat exports during April 2015 to February 2016 at 576,000 MT while the wheat product exports during April 2015 through January 2016 are estimated at over 380,000 MY (wheat equivalent). At the current pace of exports, MY 2015/16 exports are expected to reach 1.0 MMT. MY 2016/17 exports are raised higher to 400,000 MT on expected continued exports of wheat products to the traditional markets and some exports to neighboring countries.

RICE

India: Commodity, Rice Milled, PSD

Rice, Milled

2014/2015

2015/2016

2016/2017

Market Begin Year

Oct 2014

Oct 2015

Oct 2016

India

USDA

New

USDA

New

USDA

New

Official

Post

Official

Post

Official

Post

Area Harvested

43740

43740

42750

42750

0

43500

Beginning Stocks

22757

22757

17766

17766

0

13766

Milled Production

105480

105480

103000

103000

0

105000

Rough Production

158236

158236

154515

154515

0

157516

Milling Rate (.9999)

6666

6666

6666

6666

0

6666

MY Imports

0

0

0

0

0

0

TY Imports

0

0

0

0

0

0

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

128237

128237

120766

120766

0

118766

MY Exports

12238

12210

9000

8500

0

7000

TY Exports

11046

11058

9000

8500

0

7000

Consumption and Residual

98233

98261

98500

98500

0

99500

Ending Stocks

128237

128237

120766

120766

0

118766


All major rice producing states, except the drought affected Telangana, have registered higher procurement this year, with the northern states of Punjab and Haryana registering record procurement levels. Additional procurement is likely to continue in the southern and eastern states, but is likely to be lower than normal due to the expected lower harvest of rabi rice due to irrigation water stress. Consequently, total procurement is likely to be around 33 MMT, slightly higher than last year.

Stocks up, But Likely to Come Down

Following early season bumper government procurement in the ongoing season, government held rice stocks on April 1, 2016, increased to 28.8 MMT compared to 23.8 MMT a year ago, and more than double the government desired stocks of 13.6 MMT. However, expected weakening in government procurement and continued higher offtake of rice under the PDS and other government programs is likely to draw down these stocks in the second half of the marketing season. Consequently, MY 2015/16 ending stocks are estimated at 13.8 MMT (11.2 MMT government stocks and 2.6 MMT private stocks) compared to 17.8 MMT (14.2 MMT government stocks and 3.6 MMT private stocks) last year.

Exports Continue at Lower Pace

Indian rice exports weakened since the beginning of MY 2015/16 on relatively weak export demand for non-Basmati rice from African countries and neighboring Bangladesh.

Rice exports from October 2015 through February 2016 was estimated at 3.8 MMT, down 32 percent compared to rice exports during the same period last year. Assuming the current price parity for Indian rice vis-à-vis other origins and at the current pace of exports, MY 2015/16 exports are estimated lower at 8.5 MMT compared to 12.2 MMT last year. Calendar Year (CY) 2016 exports are also estimated lower at 8.5 MMT. Post's continues to forecast MY 2016/17 and CY 2017 rice exports unchanged at 7 MMT on forecast tight supplies (IN6033). MY 2014/15 rice exports are revised marginally to 12.2 MMT (record) and CY 2015 exports to 11.06 MMT.