SPECIAL: Soft commodities will be in focus if rains play truant

If rains play truant, agricultural commodities will rise

The spate of bad news just doesn’t seem to stop. A day after Standard & Poor’s warned about the high possibility of a sovereign downgrade, an Economic Times report says that rainfall in June is 40 per cent below normal. While some may say it is too early to raise the alarm bell, agriculturists generally give a higher weightage to rainfall in the beginning of the season.

Pre-monsoon and heavy early monsoon are necessary to moisten the soil which would have lost a major portion of water during the summer season. Further, this water also comes in handy in case monsoon falters going ahead.

Pre-monsoon and heavy early monsoon are also essential for the paddy crop, which is one of the main crops grown in the country, especially in south India. However, rainfall in south India is 58 per cent below average, while there is a deficit of 70 per cent in the main oilseed growing area in central India. Only 16 per cent of the country has received normal rainfall. The monsoon has not picked up beyond the coastal areas.

To add to the trouble is the high probability of occurrence of the El Nino effect, which affects weather patterns across the globe, and has an impact on crop output. Agriculture scientists are expecting El Nino to strike in August-September. This means that sowing should be completed early so that the plants are strong enough and the ground water levels are adequate to meet a prolonged dry spell in the second half.

If rains get delayed, the acreage of major crops is shortened, and farmers shift to crops such as pulses which require less water.
India’s agriculture is still rain-dependent as no other form of irrigation is available to 55 per cent of the arable area. Though agriculture contributes only 15 per cent to GDP, its impact on inflation and consumption is very high.

A number of sectors such as automobiles, consumer goods, cement and steel have grown over the last few years on account of rising demand from the rural area. Their growth can be affected if the monsoon plays truant.  The country is already hurting due to sticky food inflation, which has the potential of moving higher.

If the dry spell continues, it will be time to shift the portfolio preference to soft commodities (agriculture commodities), which could shoot up on account of lower supplies.