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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


10 August 2012

USDA GAIN: India Grain and Feed Update August 2012USDA GAIN: India Grain and Feed Update August 2012

Almost halfway through the 2012 monsoon season (June-September), rains have been significantly deficient in the central, north and northwest parts of India, indicating a below-normal monsoon. Consequently, Post?s MY 2012/13 production forecasts for rice, corn, sorghum, and millet have been revised lower, and may decline further unless the monsoon gains momentum in the next few weeks. An Empowered Group of Ministers (EGoM) announced a relief package of about Rs 19 billion ($342 million) to states facing a drought-like situation, and a Diesel fuel subsidy of 50 per cent to farmers for saving standing crops. Concerns about an impending drought have led to a significant increase in food prices with food grains prices rising by 6 to 14 percent during July. The Ministry of Agriculture?s recently released Fourth Advance Estimates for Indian Crop Year (ICY) 2011/12 (July/June) further raised the food grain production estimate to a record 257.4 million tons on higher-than-earlier expected yields.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Poor Monsoon Portends Moisture Deficit….

Almost halfway through the 2012 monsoon season (June-September), rains have been significantly deficient in the central, north and northwest parts of India, indicating a below-normal monsoon. Cumulative rainfall for the week ending August 1, 2012, was significantly below normal (see Appendix 1) in many parts of the country, with only 16 of the 36 weather subdivisions receiving normal or above normal-rainfall. The all-India area-weighted rainfall total through August 1 was reported as 19 percent below normal. Deficient monsoon rains have affected water storage in 81 major reservoirs, which are currently running low at 66 percent of last year?s level and 81 percent of normal (longer-term average level).

While the monsoon may recover in the second half (August and September), the 2012 monsoon at best can recover to 85 percent of normal based on the last 10 years? monthly precipitation data. Thus, the 2012 monsoon is most likely to be well below the 90 percent threshold that defines a „deficient? monsoon. A comparison of this year?s rainfall pattern with historical data shows that the situation is similar to the last two “deficient” monsoon years of 2002 and 2009 (see Appendix 2). The predominantly rainfed agriculture states of Karnataka, Maharashtra, Gujarat and Rajasthan have been particularly rain deficient, which will affect corn, sorghum, millet, and pulse crops.

… and Affects 2012/13 Production Prospects.

Poor rainfall distribution in central, north and northwest India is likely to affect adversely the MY 2012/13 kharif (fall/early winter harvested) food grain crops like rice, corn, sorghum, millet and major pulses (pigeon pea, mung beans, black matpe). Planting of the upcoming kharif crops is lagging significantly behind last year, particularly rainfed (dryland) coarse grains and pulses.

India: Progressive Planting of Major Kharif Food Grains

(Area in Million Hectares)
Crop Planting as of July 27, 2012 Planting as of July 29, 2011 Planting as of July 29, 2010
Rice 19.11 20.99 19.98
Corn 5.72 5.93 6.39
Sorghum 1.72 2.23 2.41
Millets 4.31 7.03 7.90
Pulses 6.30 7.39 8.18
Source: Ministry of Agriculture, Government of India (GOI).

Given the rainfall deficit through July but assuming normal rains will fall in August/September, Post revises the MY 2012/13 production forecast for rice, corn, sorghum, and millet downward. The window of opportunity for planting/re-planting of most kharif grain crops will be over by the second week of August in most states. Unless monsoon activity gains momentum in the next week and a half, there will likely be a further decline in planted area and production of rice, corn and other coarse grains.

Rice:

Post?s MY 2012/13 rice production estimate is revised lower to 94 million tons from 42 million hectares on deficient rains in the rice-growing states of Punjab, Haryana, Uttar Pradesh, West Bengal, Tamil Nadu and Bihar. The effect of poor rainfall through the first half of the monsoon season is relatively more severe in eastern Uttar Pradesh, West Bengal, and Tamil Nadu, where rice transplanting is almost entirely dependent on monsoon rains. Although rice planting in the surplus states of Andhra Pradesh, Punjab, West Uttar Pradesh and Haryana is mostly irrigated, deficient monsoon rains affect rice prospects due to depletion of rechargable ground water and surface reservoirs required for irrigation. Additionally, the cost of production for farmers is likely to increase due to greater operation of Diesel-powered pumps in irrigated areas.

Planting progress is currently lagging behind last year?s level by about 2 million hectares and the window of opportunity for planting of rice in most states will be over by the second week of August. On a positive note, area planted under long-grain basmati rice in Punjab, Haryana and western Uttar Pradesh is likely to expand on relatively strong export demand and a longer planting window (through end of August). However, if rains remain deficient in August, farmers will most likely shift to less irrigation-dependent crops, like short-season pulses and forage crops. Deficient and erratic monsoon rains and delayed planting in most states will likely adversely affect yields for these crops, especially compared to last?s year record 3.5 tons/hectare. Although the government should make efforts to reduce kharif rice losses and encourage rabi (winter planted/spring harvested) rice production by providing various incentives and input subsidies to farmers and drought-mitigating contingency plans in affected states, MY 2012/13 production is forecast to decline at least to 94 million tons from 42 million hectares compared to last year?s record 104.3 million tons from 44.4 million hectares. In a worst-case scenario, if the monsoon rains remain deficient in August, production will almost certainly not achieve even that reduced level. However, a clearer picture will emerge only by the end of August after assessing precipitation and soil moisture conditions in major production areas.

Corn:

Post?s MY 2012/13 corn production estimate is revised lower to 20.0 million tons due to deficient rains in Gujarat, Rajasthan and parts of Karnataka. Rainfall has been deficient but adequate for corn in the major surplus states of Andhra Pradesh, Maharashtra and parts of Karnataka. However, if deficient rains persist through the first fortnight of August, production prospects will be adversely affected on lower area planted and yields. Should monsoon rains be deficient in August/September, production prospects would suffer for rabi corn, which accounts for about one-fourth of the total crop.

Other Coarse Grains:

MY 2012/13 sorghum production forecast is lowered to 6.4 million tons, and 10.0 million tons for millet due to current drought-like conditions in the major producing states of Rajasthan, Karnataka, Gujarat and Maharashtra. While the current planting figures are significantly behind last year?s, the decline in production of sorghum and millet may be less severe as farmers who otherwise would plant rice shift to short-season coarse grains, supported by government contingency plans if rains remain weak in August. It is possible that the area under sorghum and millet may remain unsown in Maharashtra, Karnataka, Gujarat and western Rajasthan, as the contingency plans for these states will focus on forage production, short-season pulses and fallow to conserve moisture for early planting of rabi crops.

Government Takes Steps to Mitigate Looming Crisis

The Ministry of Agriculture has been closely observing the monsoon?s progress and periodically issuing crop advisories as well as contingency plans in case of imminent drought (http://agricoop.nic.in/). On July 31, 2012, an Empowered Group of Ministers (EGoM) on drought, headed by Agriculture Minister Sharad Pawar, announced a relief package of about Rs 19 billion ($342 million) to states facing a drought-like situation: Karnataka, Maharashtra, Rajasthan, Gujarat and Haryana. The EGoM also announced a Diesel fuel subsidy of 50 per cent to farmers for saving standing crops - 25 per cent of the subsidy on Diesel will be borne by the central government and 25 percent by state governments. While the modalities for the Diesel subsidy program are yet to be settled, there have been implementation problems in the past, whereby the beneficiaries have not received the subsidy in time. The EGoM is likely to meet regularly, and may announce additional measures after assessing the monsoon situation in the second and third weeks of August. Some of the state governments have also started implementing drought management contingency plans. Several state governments are already seeking financial assistance from the central government for additional input subsidy (free electricity, Diesel subsidy, free seed, etc), loan rescheduling and cash relief to farmers and employment for displaced labors under the Mahatma Gandhi National Rural Employment Guarantee Act, and other programs for mitigating impact of drought conditions on the rural economy.

Food Prices Surge…

Continued deficient monsoon rains and reports of impending drought have led to a significant increase in food prices with prices of most food grains rising by 6 to 14 percent during July (see below chart and Table 9). The increase in the prices of corn and various pulses has been very strong, raising serious food inflation concerns among policy makers.

India: National Average Prices for Selected Staple Crops

Despite a likely decline in food grain production this year, overall food grain supplies should remain stable following record procurement of wheat (38.0 million tons) and rice (37.0 million tons) by the government from the record MY 2011/12 rice and 2012/13 wheat crops, which resulted in an “abnormally” high build-up of government-held stocks. Government-held food grain stocks on July 1, 2012, were estimated at 30.7 million tons of rice and 49.8 million tons of wheat, more than two and a half times higher than the desired stock levels (11.8 million tons rice and 20.1 million tons wheat).

Government May Intervene to Control Prices

Media reports suggest that the government is closely monitoring the food price situation, and may announce measures to keep food prices under control. The government is likely to increase the release of wheat and rice through the public distribution system (PDS) and open market sales to keep prices under control. However, the government may explore additional market control measures: imposing limits on stockpiles to prevent hoarding, cracking down on holders of stocks, and banning futures trading, if prices of grains and pulses continue to rise.

Trade Not Affected If Monsoon Recovers

Post estimates for exports of wheat, rice, and corn remain unchanged on expected sufficient domestic supplies. If the monsoon recovers in August and rains are normal in August/September, the government is unlikely to impose any export control measures on rice, wheat and corn. However, if rains remain deficient through August/September, the government may review exports of non-basmati rice, wheat from government stocks and corn, with an eye to imposing an export ban.

To contain the rising prices of pulses (beans, peas, and lentils), the government may decide to import and distribute additional quantities of pulses at subsidized prices through the PDS. The GOI has authorized government agencies/trading companies such as National Agriculture Marketing Federation (NAFED), State Trading Corporation (STC), Project and Equipment Corporation (PEC) Ltd., and Mineral and Metal Trading Corporation (MMTC) to import pulses for sale in the domestic market, and these agencies qualify for a subsidy of up to 15 percent of the cost of importation.

Government Agencies Float Tender for Wheat Exports

On July 13, 2012, the government parastatals nominated for export of government-held wheat (see GAIN report IN2095) floated tenders for exports of 240,000 metric tons of wheat. The wheat being offered is mostly from MY 2012/13, with some quantities from MY 2011/12 also. Later on July 27, 2012, the PEC floated a tender for additional an 60,000 metric tons to be exported from the east coast.

While the tenders are likely to be let on August 3, 2012, sources report that there is considerable interest from the private trade.

Official Production Estimates for Crop Year 2011/12 Raised

On July 16, 29012, the Ministry of Agriculture released the Fourth Advance Estimates for Indian Crop Year (ICY) 2011/12 (July/June), wherein the food grain production estimate has been raised further to a record 257.4 million tons, nearly five million tons higher than the third advance estimate, and a 5.2 percent increase over the final 2010/11 production (244.8 million tons) estimate. ICY 2011/12 food grain production includes rice, coarse grains and pulse crops harvested last fall and this spring (MY 2011/12), and wheat and barley crops harvested in March\April, 2012 (MY 2012/13).

The government has raised the ICY 2011/12 production estimates of most grains on higher-than-anticipated-earlier yields. A normal 2011 monsoon coupled with favorable weather condition during the growing period, particularly for the rabi (winter planted/spring harvested) crops, was reportedly responsible for the increased yields. MY 2012/13 wheat production has been revised higher to a record 93.9 million tons, more than an 8.1 percent increase over last year?s production. MY 2011/12 rice production has also been further raised to a record 104.3 million tons, about an 8.7 percent increase over last year?s crop.

The PS&D tables for various grains have been revised to reflect the official production estimates with appropriate adjustments in consumption, trade and/or stocks to reflect these changes.

August 2012

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