Agricultural commodities decline on steady recovery in sowing area

Huge inventory, bumper production and global price slump to keep food prices subdued, horticulture prices may buck the trend though

Prices of agricultural commodities - from sugar to soybean - declined so far this financial year on the government attempt to keep them subdued. Prices of agri commodities fell upto 20% since April despite over a month of delay in the monsoon rainfalls and thereby a decline sowing area this kharif season.

While RBD (refined, bleached and diodised) palmolein price plunged by 20% to Rs 48.80 a kg on rising import from Indonesia and Malaysia - world's two largest suppliers, maize recorded a decline of 18% to Rs 12.15 a kg due to a smart recovery in sowing area.

Abundant supply of rice and wheat kept cereal prices under check. Looking at narrowing the gap in sowing area this kharif season forced the government to vacate space through releasing an additional 10 million tonnes of wheat and 5 million tonnes of rice into the open markets to create room for procurement in the godowns of the Food Corporation of India (FCI).

The Food Minister Ram Vilas Paswan reiterated on several occasions that the government would not allow prices of agricultural commodities rise this festive season. Through delisting of fruits and vegetables from the Agricultural Produce Marketing Committee (APMC) and bringing onion and potato under Essential Commodities, the government successfully created a threat of raids and seizure in the minds of stockists. That resulted into release of adequate quantity into the market.

A Rabobank report said that bumper crop in the United States this season added to the bearish global pressure, with the projection of the highest yield potential in the history. With good sub soil moisture and weaker alternative crop prices, an increase in 2015-16 acreage to erode prices in future as well with wheat price is likely to remain lower in September - December quarter, the bank said.

With the gradual recovery in the monsoon rainfalls nearly overcome the deficit created in the early season, the prospects of agricultural output enhanced superseding the output estimate of the previous year. Consequently, foodgrains production in India is estimated at a bumper 264.77 million tonnes during 2013-14 as per the fourth advanced estimates by the Ministry of Agriculture as compared to 257.13 million tonnes in the previous year. Since, huge quantity of foodgrains stock lies with the government, a bumper crop of the current season is likely to worsen the sentiment further. At least for one more year, prices of agri commodities are likely to remain suppressed as a consequence.

"Food prices continue to remain high and are likely to pressure inflation going forward too. The sub-normal start of the monsoon season this year has pushed up prices of food articles viz. horticulture crops (fruits & vegetables), milk (partly attributed to increased cost of fodder) and spices & condiments," said Madan Sabnavis, Chief Economist, Care Ratings.

The area of crop sown after seeing a lackluster start has witnessed a steady increase with the progress in monsoons. As of September '14, 95 per cent (or 999 lakh hectares) of the normal area under kharif crop has been sown. However, the area under cultivation in the ongoing crop season continues to be 3 per cent lower than that in the previous year.

Abinash Verma, Director General of India Sugar Mills Association (ISMA), said that India is facing 7.5 million tonnes of carry over stocks with 2.5 million tonnes of exportable surplus. In absence of government support, prices are unlikely to move northward, he added.

Meanwhile, a report from the Federation of Indian Chambers of Commerce and Industry (FICCI) forecast India's agricultural growth to remain steady this year.