Kharif arrivals likely to dampen food prices, but downside limited

CPI-inflation for the month of September surged to a five-month high of 7.4 per cent largely due to a spike in food inflation which jumped to a 22-month high of 8.6 per cent for the same period

As the country enters a busy festival season, all eyes will be on how food prices behave in the coming weeks - even months.

Consumer Price Index-based inflation for the month of September surged to a five-month high of 7.4 per cent, largely due to a spike in food inflation that jumped to a 22-month high of 8.6 per cent for the same period.

As the arrival of kharif crops peaks in the weeks ahead, traders and market players are hopeful that prices of main commodities will soften. But the downside could be limited mainly in cereals due to low stocks in government godowns and damage to the standing harvest because of late withdrawal of the southwest monsoon.

Oilseeds

In the case of kharif oilseeds, traders expect the sentiment to remain weak for soybean and groundnut, with markets falling further from their current levels after Diwali.

This is largely due to higher production of soybean this year and steady supplies of imported edible oil due to good palm oil stocks in Malaysia and a favourable duty structure.

“In soybean, we expect prices of good quality soybean to be around Rs 3,500-4,000 per quintal in the near term, while that of soybean with high moisture content, prices are expected to be around Rs 3,500 per quintal. In the case of groundnut, prices will tend to be closer to the 2022-23 minimum support price (MSP) of Rs 5,850 per quintal. They can be in the range of Rs 5,000-65,000 per quintal, depending upon the crop’s quality,” Tarun Satsangi, AGM (commodity research) at Origo Commodities, told Business Standard.

The MSP for soybean for the 2022-23 season is Rs 4,300 per quintal. However, the catch here is the impact of late rains on the standing crop.

A recent field visit by the Solvent Extractors’ Association of India (SEA) found that groundnut yields in Gujarat - the largest producing state - are expected to go down by 22.18 per cent, while around 10.52 per cent area has shifted towards other competing crops.

As a result, groundnut production in Gujarat, according to SEA, in the kharif season is expected to be around 3 million tonnes (mt), against 3.8 mt last year.

Cotton

Traders said the impact of recent rains on cotton production has not been very severe and production is expected to be higher than last year at around 38 million bales.

One standard bale is 170 kilogram.

Good production, coupled with soft international rates, might push down prices below the current levels of around Rs 32,000 per bale to almost Rs 25,000 per bale, from where a pull-back could be expected.

In May this year, cotton prices had touched a high of almost Rs 47,000 per bale.

Maize and paddy

Maize prices, which had moved up to around Rs 2,600 per quintal before softening at the current levels of around Rs 2,350 per quintal, might drop further towards Rs 2,000 per quintal during peak arrival time after Diwali. But here the downside seems limited as demand remains high.

In the case of paddy, traders and market players feel that prices of most varieties will remain stable for a while, after which they might firm up.

“All eyes will be on the actual kharif crop size and the official procurement trends,” said another trader.

Pulses

In the case of tur, traders expect production in the kharif season to be around 3.6 mt, while demand is around 4.5 mt. The gap will be filled with imports from Africa and Myanmar.

“Tur prices will remain weak due to heavy imports. But from May and June, prices might tend to move upwards,” said Rahul Chauhan, commodity analyst at iGrain India.

In the case of urad, traders expect prices to remain firm due to lower production and the impact of recent rains on the standing crop.

“The urad crop area in Myanmar, which is a big exporter to India, is also down. This might cause prices to remain firm,” said Chauhan.

In the case of moong, kharif production is projected to be higher at 1.75 mt this year, against 1.48 mt last year. This will keep prices below the MSP.

“Every month, a new moong crop arrives in some part of India. Availability remains smooth. Prices may increase in future, but will trade below MSP,” added Chauhan.

“On the whole, I feel the bull run in agriculture commodities that started this year has ended in June and we are in a phase of consolidation before a drop can be expected,” said Satsangi.

QuantCo Research in a recent note said that with the monsoon season well behind us, the risks to food inflation are now stacked on the upside.