India: Agro markets volatile, no respite from rains; monsoon withdrawal eyed

The south-west monsoon that unleashed its fury in late July has been relentless ever since. Central India, in particular, saw extended heavy rainfall, which initially benefitted the kharif crops but is now a cause of worry.

Parts of Madhya Pradesh, Maharashtra and Gujarat have been battling water logging and floods. This has begun taking a toll on crops such as soybean, cotton and pulses, though sugarcane and rice yield may get a boost. In Central India, cumulative monsoon rains are now 21 percent more than normal.

Southern India, too, has received sufficient rains except in Rayalseema. In northwest India, though, barring Rajasthan, all subdivisions are in deficit. And the deficit in the east and northeast India has been consistent this season, mostly affecting paddy sowing.

The sowing shortfall—observed in June-July—for most kharif crops narrowed in August except for rice, groundnut and moong. Acreage sown for rice was reportedly 5.18 percent lower, 5.47 percent for groundnut and 9.6 percent.

Harvesting of early-sown crops (in irrigated belts) of cotton and pulses have started, but actual supply pressure may build up a little later this season due to delay in sowing in rainfed areas.

Amid the erratic monsoon this season, much volatility has been seen in prices of agricultural commodities. The kharif crop picture, which had started looking good by late August, has again turned a bit uncertain, with rains lashing parts of Central India last week.

Soybean is one such crop. Heavy rains resulted in an exceptional surge (of over 3 percent) in prices on September 11. MCX cotton, too, recovered this week due to heavy rains. Among pulses, urad may have to bear losses because of incessant rains.

Price gains in soybean and cotton were also supported by the US and China calling truce on a damaging trade war, with America likely to exempt 16 American-made products from tariffs as a sign of goodwill. The list does not include agricultural products so far. Further exemptions will be announced in coming weeks and, thus, global soy/ cotton markets, too, turned positive.

The weather department expects wet conditions to continue this week and gradually turn dry later in the month. It expects the monsoon to start retreating from northwest Rajasthan after mid-September, ie next week.

Once the weather turns dry, any potential would be capped. Overall, soybean and cotton acreages are higher this season and may counter-balance losses in yield caused by water logging. We are still optimistic with respect to the outputs of these two crops and, thus, expect markets to come under pressure on the commencement of harvesting on October.