Normal 2016 Monsoon Rains

The 2016 southwest monsoon began to withdraw from Western Rajasthan in the second fortnight of September, nearly two weeks later than normal and has currently progressed through north western states of Jammu & Kashmir, Punjab and Haryana by fourth week of September. However, monsoon has been very strong in remaining regions during the last two weeks. According to the Indian

Meteorological Department (IMD), India's cumulative precipitation from June through September 28 was 3 percent below the seasonal long-term average, considered near normal after two consecutive below normal monsoon in 2014 and 2015. The rainfall is normal and above in 27 weather subdivisions, and deficient in the only 9 sub-divisions, which includes northern states of Punjab, Haryana, and Uttar Pradesh; northeastern states, parts of Gujarat and South India.

The Central Water Commission (CWC), which monitors the 91 major reservoirs with 157.8 billion cubic meters (BCM) capacity, estimated water stocks in the 91 reservoirs on September 22, 2016, at 111.04 BCM compared to 94.84 BCM same time last year, but lower than the last ten year average of 120.9 BCM. However, expected good rains as monsoon withdraws from central and eastern India by mid-October is likely to further improve the reservoirs levels. Besides improved reservoir levels, the normal monsoon is also likely to improve the ground water table in most parts of the country.

Supports Upcoming Kharif Crop

Sufficient and well distributed 2016 monsoon rains since early July supported timely and higher planting of kharif (fall harvested) crops during the ongoing season. The Ministry of Agriculture (MoA) estimates total area sown till September 23, 2016 at 106.75 million hectares, about 4 percent higher than last year mostly accounted by pulses, rice and coarse cereals.

The deficient rains August in the largely irrigated northern states and 'normally high' rainfall receiving northeastern states is unlikely to adversely affect crop prospects. The recovery of monsoon rains in September, particularly in central and southern states, will also support the standing crop. Field reports suggest the standing crops are progressing well in most states under adequate soil moisture conditions.

However, excess rains and/or cyclones in the Bay of Bengal in October may affect the production prospects on potential crop damage to the crop at harvest stage. The normal 2016 monsoon is also likely to support the upcoming rabi (winter planted) crop planting prospects on sufficient soil moisture and improved ground water and reservoir levels.

Government Forecasts Bumper MY 2016/17 Kharif Harvest

On September 22, 2016, the MoA released its First Advance Estimate of Food Grain Production for the Indian Crop Year (ICY) 2016-17 (July-June) optimistically estimating the India's kharif grain production at a record 135 MMT, more than 11 MMT higher than last year, and about 4 MMT higher than the previous record harvest in ICY 2011/12. The crop-wise breakup:

  • Rice at a record 93.9 MMT (vs. 90.6 MMT last year and previous record 92.9 MMT in 2011/12)
  • Corn at a record 19.3 MMT (vs. 15.2 MMT last year and previous record 17.1 MMT in 2013/14)
  • Pulses at a record 8.7 MMT (vs 5.5 MMT last year and previous record 6.4 MMT in 2007/08)
  • Other coarse grains production at 13.2 MMT (vs. 11.9 MMT last year)

Market sources report that the first advance estimates are highly optimistic, largely based on the provisional planting reports and are likely to be revised later based on the revised area and yield reports after harvest.

WHEAT

Wheat

Market Begin

Year

2014/2015

2015/2016

2016/2017

Apr 2014

Apr 2015

Apr 2016

Area Harvested

30473

30473

31470

31470

30220

30220

Beginning Stocks

17830

17830

17200

17200

14500

14500

Production

95850

95850

86530

86530

90000

90000

MY Imports

51

51

471

471

2000

3000

TY Imports

273

273

300

300

2000

3000

TY Imp. from

0

0

0

0

0

0

Total Supply

113731

113731

104201

104201

106500

107500

MY Exports

3409

3409

1060

1060

400

400

TY Exports

1820

1820

872

872

400

400

Feed and

4500

4500

4200

4200

4500

4800

FSI Consumption

88622

88622

84441

84441

90600

91300

Total

93122

93122

88641

88641

95100

96100

Ending Stocks

17200

17200

14500

14500

11000

11000

Import Duty on Wheat Lowered to 10 percent

On September 23, 2016, the Ministry of Finance issued a notification lowering the basic custom duty on imports of wheat from 25 percent to 10 percent (ad valorem on CIF value) till March 1, 2017. Market sources report that the GOI decision to lower import duty was due to concern about the rising domestic prices and relatively strong off take of government held wheat in the recent months.

Domestic prices have surged since June amidst speculation on the size of the 2016/17 harvest due to second consecutive deficient 2015 monsoon) and warm winters affecting the wheat crop. While the MoA optimistically estimates the MY 2016/17 wheat production at 93.5 MMT, private trade sources continue to estimate the crop in the range of 82 to 87 MMT. Due to the strong domestic prices, government procurement during MY 2016/17 declined to 22.9 MMT compared to 28.1 MMT last year. Strong domestic market prices during June-August strongly suggest tight domestic supplies due to lower production compared to the MoA's estimate. At this stage, Post continues to estimate MY 2016/17 wheat production at 90 MMT.

Firm domestic prices resulted in stronger offtake of government held-wheat in the last few months, especially by the private trade under the open market sale scheme. The offtake of government wheat during July-August 2016 was estimated at 5.9 MMT compared to 4.2 MMT during the same period last year. Consequently, the Government-held wheat stocks on September 1, 2016 declined to 24.25 million metric tons (MMT), more than 10 MMT lower than last year. Market sources estimate the October 1, 2016 stocks to be around 21.4 MMT, slightly higher than the government's desired stock level of 20.5 MMT raising concerns of further drawing down of stocks to levels below the government desired stock levels in the second half of the marketing year when the offtake increases under the OMSS.

Consequently, the government lowered the import duty on wheat to allow private mills to augment their wheat consumption requirement through imports. Market sources report that imports of wheat at 10 percent import duty will be economical for the millers at the current international prices, especially the southern and western mills due to the in-land freight advantage. Due to the strong speculation on the impending lowering of the import duty, the domestic wheat prices eased down in September as private trade started contracting for importing wheat to augment their requirements.

MY 2016/17 Imports Raised

Post's MY 2016/17 wheat imports are revised higher to 3 MMT on improved import prospects due to the lower import duty on relatively weak international prices. Provisional official figures estimate MY 2016/17 wheat imports during April through August, 2016 at 263,000 MT and trade sources report an additional 0.5 MMT has been shipped during September which will be offloaded by 2nd week of October, and an additional 700-800,000 MT has been contracted for delivery through November/December. Assuming no significant changes in the current price parity between domestic and international wheat prices, imports through February 2017 are likely to reach 3 MMT. However, import prospects are likely to be affected if the domestic prices decline or international prices increase by around 10 percent over current levels.

Consumption Revised

MY 2016/17 consumption estimate is revised marginally higher to reflect the change in the import estimate.