Highlights

Government of India raised the minimum support price for rabi (winter planted) crops like wheat, barley, gram, lentils, rapeseed & mustard, and safflower for the upcoming Indian crop year 2016/17 (July-June) by 7 to 16 percent over last year. Planting of rabi crops is ahead of last year on optimal soil moisture conditions and irrigation water availability.

General Information

Minimum Support Price for Rabi Crops Raised

On November 21, 2016, the government announced the minimum support price for rabi (winter planted) crops for the upcoming Indian crop year 2016/17 (July-June). While the MSPs for wheat and barley have been raised by 7-8 percent, MSPs for pulses and oilseeds have been raised significantly (10-16 percent) over last year to encourage domestic production.

Typically, the government undertakes MSP procurement operation for rice and wheat, and occasionally for other crops. However, this year the government has been relatively active in procuring pulses at MSP as it plans to create a pulse buffer stocks of 2.0 MMT. Nevertheless, the new MSPs are unlikely to cause any major shift in the cropping pattern for the upcoming season, except for some marginal shift in acreage towards pulses in the partially irrigated areas. Most farmers in the wheat belt (Uttar Pradesh, Punjab, Haryana, Madhya Pradesh and Rajasthan), will continue to prefer wheat over other crops due to the current high market prices, existing government food grain procurement programs focusing on wheat, and relatively stable yields due to relatively lower vulnerability to pests/diseases and climate fluctuations compared to other crops.

Rabi Planting Progress Steady

Due to the timely withdrawal of a normal 2016 southwest monsoon, planting of the ongoing rabi season crops commenced on time in the last week of October under optimal soil moisture conditions and irrigation water availability. Following the government announcement on demonetization of higher value currency on November 8, 2016, planting faltered the following week but has recovered and progressing well after government initiated steps to improve the cash availability in the rural sector (see note below). The normal 2016 monsoon after two years of deficient rainfall have improved the ground water and reservoir water levels supporting the prospects for higher rabi planting in the upcoming season.

The Ministry of Agriculture (MoA) estimates total area sown till November 25, 2016 at 32.8 million hectares compared to 31.3 million hectares same time last year. Sources report that planting is ahead of last year in most states except for some states (Haryana, Gujarat and Uttar Pradesh) that received deficient 2016 monsoon precipitation.

Planting in the ongoing rabi season for wheat, pulses (gram, lentils, mung beans and black eye beans) and oilseed (rapeseed & mustard, safflower and sunflower) is significantly ahead of last year, while planting of rice and coarse grains (corn, sorghum and barley) is lagging behind. Field sources report that planting is progressing well in most states and is likely to continue through end December. Planting of wheat, pulses and oilseed is likely to be supported by high market prices and the increase in the government's minimum support prices. However, winter temperatures (December-January) and precipitation will be critical as lower temperatures and some rains during late December/early January) are needed to support plant growth and boost production prospects.

Note on Demonetization: On November 8, 2016, Prime Minister Narendra Modi announced that the Indian currency notes for INR 500 and INR 1000 will no longer be legal tender from midnight and will be replaced by new currency notes for INR 500 and INR 2000. People holding the old currency notes were advised to either deposit the old currency notes in their bank accounts or exchange at the bank (subject to daily/weekly limits). The government also set up daily/weekly ceiling limits for withdrawal of the valid currency notes (existing lower denomination notes and new notes) from the banks. Given that the INR 500/1000 currency accounted for about 80-85 percent of the currency under circulation and an insufficient supply of new currency notes (as government is still printing), there was a severe cash shortage affecting business and market operations. There were concerns that the demonetization will affect ongoing rabi planting operations as farmers and input suppliers (seed, fertilizers, chemicals and fuel) faced a shortage of currency (most sales are cash based). However, the government took steps to improve the cash availability to farmers like increasing the cash availability to the rural banking sector, increasing the cash withdrawal limit from the banks for farmers, allowing farmers to buy seeds from government agencies using old INR 500 notes, etc.

The impact of demonetization on seed and labor purchase is limited. Most farmers reuse seeds from their last year's crop (seed replacement rate for most crops range from 15 to 30 percent, except hybrid corn) and purchase whatever new seeds they want in advance before the planting operation. Most of the farm laborers have long working relations with the farmers and are unlikely to stop working on critical planting operation for lack of immediate payments. However, farmers can face problems in purchasing fertilizers and chemicals, but the new relaxations will help them sources these inputs for the ongoing planting.

RICE

Rice, Milled

Market Begin Year

India

2014/2015

2015/2016

2016/2017

Oct 2014

Oct 2015

Oct 2016

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Harvested

44110

44110

43479

43388

44500

44500

Beginning Stocks

22800

22800

17800

17800

18400

18400

Milled Production

105482

105482

104320

104320

106500

106500

Rough Production

158239

158239

156496

156496

159766

159766

Milling Rate (.9999)

6666

6666

6666

6666

6666

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

128282

128282

122120

122120

124900

124900

MY Exports

12238

12238

10208

10240

10000

10000

TY Exports

11046

11046

10500

10000

10000

10000

Consumption and

98244

98244

93512

93480

97000

97000

Ending Stocks

17800

17800

18400

18400

17900

17900

Total Distribution

128282

128282

122120

122120

124900

12490


The kharif rice harvest is almost over, except for late sown rice in eastern and southern states. Marketing of paddy (unmilled) rice is nearly over in the northern states of Punjab and Haryana, but will continue in other states through December. Market sources report some problems in marketing of paddy rice due to the demonetization in states where the government procurement operations are weak.

Government Procurement Ahead

The pace of government procurement of MY 2016/17 rice under the MSP operation continues to be well ahead of last year on timely harvest and higher production realization. MY 2016/17 rice procurement through November 24, 2016, was estimated at 15.6 MMT compared to 13.3 MMT during the corresponding period last year.

Most of the procurement increase has been in the northern states of Punjab and Haryana, where it is likely to be over by 1st week of December. However, procurement in other states is likely to accelerate in December/January. Market sources expect higher procurement in most states on reports of higher production and relatively weak open market prices. Although overall procurement is likely to depend on the open market price movements, MY 2016/17 rice procurement is likely to be more than 35 MMT compared to last year's 34.2 MMT.

Government rice stocks on November 1, 2016 were reported at 25 MMT compared to 21.1 MMT a year ago and significantly higher than the government desired stocks (highest of 13.6 MMT on April 1).

Prices Weaken

Domestic prices have weakened in November on strong domestic supplies and relatively weak export demand. Expected strong market arrivals are likely to keep prices under pressure in the next couple of months. However, future price movements will depend on the export demand and international prices.

Exports Falter

Post's MY 2015/16 export estimate is revised marginally to 10.24 MMT based on the latest official trade statistics. CY 2016 exports are revised lower to 10 MMT based on the slowdown in the pace of exports in the recent months.

Preliminary export figures for the first ten months of CY 2016 estimates India's rice export at 8.58 MMT compared to 9.53 MMT during the corresponding period last year. Rice exports have slowed down significantly since August 2016 on relatively weak demand for non-Basmati rice. Market sources report continued weak export demand for non-Basmati rice but expects exports to improve from December onward on expected lower domestic prices. The recent decline in the value of Indian rupee vis-a-vis US dollars (from INR 46.5 in first week of November to INR 68.8 currently) is also likely to support export prospects. Consequently, Post continues to forecast MY 2016/17 and CY 2017 rice exports at 10 MMT.

Production Unchanged

Post's MY 2016/17 wheat production estimate is unchanged at 87 MMT based on the current market conditions. Recent surge in the domestic prices despite continuing imports strongly suggest tighter domestic supplies than expected from the government's 'optimistic' fourth advance estimate of 93.5 MMT.

Domestic prices surged strongly in the month of November on tight open market wheat supplies and speculation on government reducing the wheat supplies from their stocks under the open market sale scheme. Currently spot prices for wheat in the major markets are ranging from INR 18,500 ($269) to INR 21,500 ($312) per metric ton. Prices are likely to remain firm in the remainder of the season as imports have become costlier on weak Indian rupee. However, domestic prices will also respond to any changes in the international wheat prices and government's policy on import duty.

Wheat Imports Steady

Post continues to estimate MY 2016/17 imports at 3.0 MMT. Provisional official figures estimate MY 2016/17 wheat during April through October, 2016 at 774,000 MT, mostly from Australia (380,000 MT), Ukraine (282,000 MT) and France (108,000 MT). Market sources report than an additional 600-700,000 MMT has been shipped in November and about 1.2 MMT has been contracted for imports through mid-February 2017, mostly from Australia and some from Ukraine. Despite the surge in domestic prices, import prospects have been relatively unchanged due to the recent depreciation in the value of Indian rupee. Concerns on government's import policy after February 2017 have also affected import prospects. Assuming current price parity and duty structures, MY 2016/17 are likely to reach 3.0 MMT.