Seed cos' stocks decline 21% on surplus rainfalls in June

Strong monsoon diminishes prospects of re-sowing, affecting demand for additional seed and fertiliser

Share prices of seed companies fell by up to 21% in the past month, following excess rainfall and speedy progress of kharif sowing.

While the stock price of Kaveri Seed Co declined 20.6% in June, that of Advanta and Chambal Fertilisers also plunged on the BSE. Share prices of seed companies fell in tune with agro-chemical and fertiliser companies.

Good progress of monsoon augers well for the growth of kharif sown crops and, therefore, helps in their germination. Consequently, the prospects of re-sowing diminish resulting into lower demand of seed and fertiliser. However, seed and fertilser demand rises in case of deficient rainfalls scenario, which helps growth in producer companies’ top line and bottom line.

“Seed and agrochemical companies are dependent primarily on monsoon rainfalls. Initially, the India Meteorological Department (IMD) forecast deficient monsoon rainfalls and the prospects of these companies remained high. But with the actual rainfalls remaining surplus, seed and fertilizer companies will see higher sales this season and that is the reason these stocks will rebound,” said Afshan Sayyad, an analyst with Dolat Capital. The IMD has estimated 16% above-normal rainfalls in June, but continued to raise concerns for July and August.

Meanwhile, sowing area under agri commodities this season has reported a massive surge until July 26. Data compiled by the Ministry of Agriculture showed that total area sown till June 26, 2015 was at 16.56 million hectares, a 23% increase from the year-ago period.

Sowing has picked up fast during this week, led by rains, and is higher than the year-ago period, when rains had arrived late.

Pulses sowing increased by a massive 80%, while cereals and oilseeds acreage jumped 15% and 427%, respectively, in comparison with the same time last year.

Cotton sowing was up by 20% till date, while paddy sowing was down by a marginal seven% by June 26, data showed.

S K Goel, former principal secretary, government of Maharashtra, said: “Rainfalls during July and August contribute 33% and 28% of LPA (long period average) and hence, assume significance to determine the progress of kharif crops. Since the IMD has forecast deficient rainfalls, we are ready with the contingency plan which will be used as per the need.”

“In several years in the past, a dry spell followed an above-normal rainfall in June. So, nothing can be said in concrete for the overall rainfalls this season,” said an analyst.

Meanwhile, favourable monsoon rainfalls help rise in kharif crop production. Also, late season rainfalls adequate soil moisture for favourable rabi seasons. The Central government in May estimated five% higher foodgrains production this year at 251 million tonnes.