Bloomberg News

Monsoon Worst Since 2009 Threatening Sugar, Rice Crops

June 28, 2012

The worst start to the monsoon season in India in three years is threatening crops from rice to sugar cane, stoking concern that the nation may limit exports to preserve supplies. Soybean futures in India climbed to the highest since 2003 and corn rose to a five-month high.

Rainfall from June to September, which represents 70 percent of annual amount, may be below normal with the main cane-growing regions getting less rain than required, said Michael Ferrari, a commodity director and senior scientist at Falls Church, Virginia-based Computer Sciences Corp. (CSC:US) Rain is 23 percent below average since the season started on June 1, according to the India Meteorological Department.

Dry weather from the U.S. to Australia has parched fields, pushing up corn and wheat prices by as much as 17 percent this month in Chicago, curbing a decline in global food costs. El Nino weather conditions, which can parch Asia and bring cooler weather to the U.S, may develop some time during July to September, the World Meteorological Organization said June 26. India extended a ban on exports of sugar, rice and wheat in 2009, following the weakest monsoon since 1972.

“Every day is a cause of concern until the rains come to the growing regions,” said Faiyaz Hudani, senior analyst at Kotak Commodity Services Ltd. in Mumbai. “If the rains are bad, then the summer crops could be delayed, yields would be lower and the quality could be impacted.”

Recovery Possible

Sowing of summer crops such as rice and oilseeds has been delayed this year after rain was either late or less than adequate in the main growing regions. Showers in June, which account for 18 percent of season’s total, have been the least since 2009, when they were 47 percent below a 50-year average, according to the weather bureau. Rain will be 96 percent of the average between 1951 and 2000, the weakest monsoon since 2009, the state forecaster said last week.

Soybeans for August delivery climbed as much as 2.5 percent to 3,984 rupees ($70) per 100 kilograms, the highest since December 2003, on the National Commodity & Derivatives Exchange Ltd. in Mumbai, while corn for July delivery advanced as much as 1 percent to 1,274 rupees per 100 kilograms, the highest price for the most-active contract since January.

The monsoon can recover, bridging the June shortfall, said D.S. Pai, head of long-range forecasting division at the India Meteorological Department.

Sugar cane will be hit by a less than normal rainfall this year, Ferrari from Computer Sciences said, joining Morgan Stanley in raising concerns over India’s crop prospects.

‘Price Risk’

“The global supply-demand expectations for a favorable supply balance are largely dependent on a good sugar crop coming from India, and there is some risk that production projections might come up short, adding upside price risk,” Ferrari said in an e-mail. “Since domestic demand for sugar is so strong, a government ban on exports is certainly a possibility.”

Futures slumped to a 21-month low in New York on June 4 on concern that a global slowdown will curb sugar demand amid rising supplies. Production will exceed demand by 4.6 million tons in the 2012-2013 season that begins Oct. 1, the third annual global surplus, according to Rabobank International.

Production in India, which is exporting sugar for a second year after domestic output exceeded demand, may fall to between 24.5 million tons and 25 million tons in the year beginning Oct. 1 from 26 million tons estimated by the Indian Sugar Mills Association this year, Ferrari said.

‘Drought-Stricken’

“The slow early progress of the monsoon has begun to raise concerns over new crop production prospects, particularly in drought-stricken Maharashtra,” Morgan Stanley said on June 25.

Raw sugar futures have gained 9 percent this month on ICE Futures U.S., heading for the first monthly advance in four. October-delivery contract surged as much as 2.1 percent to 21.39 cents a pound in New York today.

Prime Minister Manmohan Singh is counting on growth in farm output, which accounts for about 15 percent of gross domestic product, to curb inflation in India, where the World Bank says more than 75 percent of the people live on less than $2 a day.

Inadequate rainfall may stoke food inflation as farmers and traders tend to hold back inventories, said Kishore Narne, head of research at AnandRathi Commodities Ltd. Food prices may begin to climb from October, he said.

Wholesale prices rose 7.55 percent in May after increasing 7.23 percent in April, government data showed this month. Food prices, which climbed the most in seven months, have a weighting of about 14 percent in the inflation basket.

Grain Inventories

“I am concerned that monsoon rainfall this year may be less than last year,” Food Minister K.V. Thomas said in an interview. “However, I am not worried about overall food grain production” as stockpiles will be adequate, he said.

Any review of export policies on farm goods would be based on the performance of monsoon and its impact on output, he said.

State reserves of food grain swelled to 82.4 million tons as of June 1 after the nation harvested record crops for a second year, according to the food ministry. Monsoon-sown rice production may climb 10 percent in the year starting July to a record after the end of a three-year ban on exports last year spurs planting, Tarsem Saini, president of the Federation of All India Rice Millers Association, said June 25.

Sowing of monsoon crops begins in June and harvesting starts in September. The monsoon typically begins in southern Kerala state by the first week of June, before blanketing the entire nation by July 15.

“El Nino in the eastern Pacific would suggest a below normal rainfall pattern for India,” Joel Burgio, senior agriculture meteorologist at Telvent DTN, said in a report.

The El Nino event is caused by periodic warming of the Pacific Ocean, while its reverse, La Nina, is indicated by a cooling of surface waters. The twin patterns influence weather worldwide and can roil commodity markets as farmers from Indonesia to Argentina contend with drought or too much rain.

To contact the reporters on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net; Prabhudatta Mishra in New Delhi at pmishra8@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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