Farm commodity prices soften on monsoon hopes, cereals lead fall

Several items subdued due to a severe cash crunch that forced farmers and traders to sell their stocks after posting recent gains

Prices of agriculture commodities have softened on hopes of a normal monsoon, following a steep rise in first half of May on concerns that the heat wave would take a toll on rainfall. Prices in several commodities began correcting in the middle of the last month, and in many more during the past one week.

Among cereals, maize and bajra have seen sharp fall, followed by guar seed and castor seeds. However, oilseeds led by Soybean, and other farm produce such as wheat, pulses, spices and even cotton fell.

Ajay Kedia, director Kedia Commodities says, “Prices of all major agri commodities like sastor, soybean, coriander, turmeric, jeera and cotton have fallen since early June due to various reasons such as a severe cash crunch that forced both farmers and traders to sell their stocks after recent gains. The approach of monsoons will add further pressure in coming days.”

During the general elections, there were no updates from the Indian Meteorological Department on monsoon but once polling was over, IMD said in its second forecast of the season that monsoon would be normal.

Traders used the forecasts as the trigger. While players in the futures market were waiting for an opportunity to book profits or generate liquidity, those in the spot market, who were already reeling under a cash crunch, also sold their stocks, setting off a fall in prices, starting in the second half of May. Some traders incurred mark-to-market losses in long positions, which forced them to sell.

Wheat prices fell after FCI started selling stocks to generate storage for new procurement in a process that is continuing. However, this has led to moderation in prices. Maize was trading quite high due to short supply but some conditional relaxation in imports helped soften prices.

Says Anuj Gupta, Angel Broking, DVP Research (commodities and currencies): “we expect the price of Agri commodities to fall further on arrival on monsoon and escalation of the global trade war. There is no sign of resolution between the US and China, and this will keep pressure on commodity prices globally."

Chana has corrected by nearly eight per cent to Rs 4,350 a quintal levels, from its high of Rs 4,790 in May. Gupta says chana may further fall with the onset of monsoon showers and open market sales by government agencies. This year production of pulses is likely to be lower than last year as per govt estimates.

Earlier the IMD in its April forecast had spoken of a normal south-west monsoon, predicting 96 per cent of the 50-year long-term average (LPA) rainfall of 89 cm. it had also predicted El Niño conditions over the  Pacific to remain weak.

Skymet, a private sector weather forecaster, had said two days back that the monsoon would be below normal, at 93 per cent of its LPA. However, this time it ventured to project kharif sowing and production trend and said cotton and soybean output would rise while paddy would to go down this kharif season.