Rains soften agri commodity prices

Agri commodity prices have started softening after reports of ‘above normal’ monsoon so far this season, raising the prospects for better kharif crops. Government data showed 11 per cent decline in the modal prices of moong dal this month; it currently sells in the wholesale market at Rs 80 a kg.

Masoor dal also reported a decline in its prices by 5.3 per cent at Rs 71 a kg. Urad dal and gram dal also posted 7.7 per cent and seven per cent fall in their modal prices at Rs 133.83 a kg and Rs 93 a kg, respectively. Tur dal, however, stabilised at Rs 130 a kg as on August 16.

Oilseeds and edible oils also posted a decline in their modal prices with mustard oil selling at Rs 90 a kg, 13.5 per cent lower than its prevailing price early this month. Similarly, sunflower oil and groundnut oil fell Rs 80 a kg and Rs 131.43 a kg. Although not a kharif crop, wheat reported a sharp decline in its modal price by 37 per cent at Rs 17 a kg.

The fall in agri-commodity price could bring the much-needed relief to the government in managing inflation. The impact of the price decline in agri-commodities would be felt in the August wholesale price index next month.

 

“Agri-commodity prices in the physical market move on supply-demand scenario. Normally, July-August remains a period of lean supply and, hence, prices of agri-commodities start firming up during this season. But, agri-commodity price would come down only on expectations of the new kharif crop to be much higher than that in the previous year,” said Madan Sabnavis, chief economist, Care Ratings.

Meanwhile, WPI stood at 3.55 per cent year-on-year for July against 1.62 per cent for June. The increase in prices of food articles, mainly potato, vegetables and pulses, apart from manufactured products (mainly sugar), contributed to the rise in inflation. Primary articles with an overall weightage of 20.12 in WPI reported a significant increase in their prices from 3.41 per cent (April 2016) to 9.38 per cent (July 2016).

“With monsoon playing a critical role in determining the market trend for most commodities, an above-normal rains over the past few weeks helped cool down prices as sowing activities for the kharif crops picked up,” said a Religare report.

After an 11 per cent deficit in June, rainfall during July was seven per cent above 50-year average and 5.5 per cent in August (till 14th). Total kharif sown area has reached 95.4 million hectares (as on August 12), up 6.5 per cent and 10 per cent compared to 2015 and 2014, respectively. On a y-o-y basis, sown area for rice is up seven per cent, coarse cereals and oilseeds six per cent each, while pulses sown area has jumped 33 per cent.

“After three years of decline, farm income could be up by double digits in FY17 supported by an increase in net sown area, higher yield and supportive prices. Global agri-commodities have, however, remained soft in the past month on account of easing of global supplies. We expect initial savings from increased rural income to go into deleveraging and small-ticket purchases. A healthy farm output is expected to enable food inflation to subside from current levels (8.4 per cent in July 2016),” said Suhas Harinarayanan, an analyst with JM Financial.

Following higher acreage, the kharif production is estimated to be better than last year and the government has also raised its target of rice procurement in 2016-17 by 6.5 per cent y-o-y to 33 million tonnes this year.