As kharif harvest gains momentum, what's in store for crop prices?

As the Kharif harvest season intensifies, crop prices may see shifts driven by increased arrivals, inflation pressures, and recent govt interventions aimed at stabilising key agricultural commodities

With major Hindu festivals concluding, harvesting of kharif crops is expected to gather further steam over the next few weeks as farmers and labourers return to their fields.

 

Though harvesting of most crops started well before Diwali, October and November are usually considered the peak arrival time in mandis for kharif crops.

 

This is also the time when initial sowing of rabi crops starts in fields where early maturing varieties have already been harvested.

 

One of the most important factors that would determine how the rural economy performs in the remaining quarters of FY25 is how prices of major agricultural commodities fare.

 

Though food inflation has remained high largely due to a spike in vegetable prices, for cereals, oilseeds, and pulses, the picture is slightly mixed.

 

An analysis of the price trend from early October to the end of that month, when arrivals were just starting to gain momentum, shows that some commodities, such as paddy (common), were trading below the MSP in some markets, while cereals such as maize were selling above their MSP.

 

Wheat prices (though it is an off-season for it) were selling above MSP rates in most places.

 

Oilseeds such as soybean were selling below MSP in some mandis, though there has been some improvement in prices since the central government increased the duty on imported edible oils to support oilseed farmers. However, prices are still nowhere near the MSP of Rs 4,892 per quintal.

 

Prices also depend on arrival flow and demand on that particular date. 

 

How has the production scenario been this kharif season?

 

As per the first advanced estimate of the 2024-25 kharif season released a few weeks ago, rice production in the just concluded kharif season is expected to be around 120 million tonnes, which is 5.9 per cent more than the same season last year due to a surplus monsoon and improved acreage.

 

In fact, if the first advanced estimate is correct, rice production will be the highest ever recorded in any kharif season in India's history.

 

The record rice production has come on the back of a massive jump in acreage, a surplus monsoon, and favourable prices.

 

Some reports said that the digital crop survey employed for the first time this kharif by the Central government has also accurately assessed paddy acreage, which is why the overall production numbers have gone up.

 

Due to the good prices fetched by rice, despite the ban on exports for a few months and an overall grain shortage in the market, some reports show that pulses and cotton farmers may have shifted to paddy this year.

 

Retail inflation in rice, as measured by the Consumer Price Index (combined), was in double digits for most of the past year (from October 2023 to October 2024) before tapering slightly in the latter half of the year, from July onwards.

 

Overall, India’s retail inflation rose to 6.21 per cent in October from 5.49 per cent in the preceding month, mainly due to higher food prices, breaching the Reserve Bank of India's upper tolerance level, according to official data released on Tuesday.

 

The consumer price index-based inflation was 4.87 per cent in October 2023. National Statistics Office data showed that inflation in the food basket rose to 10.87 per cent in October from 9.24 per cent in September and 6.61 per cent in the year-ago month.

 

A good rice output should help boost exports and prevent the government from reinstating any of the trade curbs it recently lifted.

 

How are other crops expected to fare?

 

Maize: Meanwhile, the first advanced estimate data showed that maize production, another prominent kharif cereal, is also expected to rise to around 24.54 million tonnes, up almost 10.3 per cent from last season.

 

This should help cool down its prices and ensure adequate availability for user industries, including grain-based ethanol manufacturers. 

“The maize market is characterized by strong demand due to the ethanol industry and stockists holding on to maize, keeping prices stable or high. Record production in India has not significantly impacted the market, as most of the produce has been absorbed by private buyers. Local price fluctuations suggest that while demand is strong, it varies by region, and the government's role remains limited due to prices being above MSP,” Rahul Chauhan, commodity analyst with iGrain India, told Business Standard.

 

He said the trend of stable to high prices will continue for some time unless there’s a shift in ethanol demand, a change in government policy, or a significant shift in international maize production, particularly from Brazil.

 

Pulses:  However, production of pulses is expected to drop to around 6.95 million tonnes, largely due to a decline in urad output.

 

Urad-

 

Urad production in the kharif season is projected at around 1.20 million tonnes compared to 1.60 million tonnes last kharif.

 

This could be a cause for concern going forward, as urad is one of the main pulses consumed in India.

 

But, with the Centre extending duty-free imports of urad until March 2025, supplies might remain stable. 

"The production of urad (black gram) in India during the kharif 2024 season is reported to have hit a 10-year low, with estimates pegging output at 1.21 million tonnes. This marks a significant decline compared to previous years, where production ranged between 1.25 million tonnes in kharif 2015 and a peak of 2.75 million tonnes in kharif 2017," Chauhan of iGrain India said.

 

He said the drop in urad production is largely attributed to a reduction in the sowing area, with farmers in key urad-producing states like Maharashtra and Karnataka shifting their focus to other crops like tur (pigeon pea) due to various factors, including crop rotation preferences and possibly better returns from tur.

 

To compensate for the shortfall in domestic production, India has been importing urad in large quantities, Chauhan said.

 

“Between April and October 2024, imports reached 4.6 lakh tonnes, a notable increase from the same period last year (3.21 lakh tonnes). This marks an almost 43 per cent rise in imports, highlighting the increasing reliance on imports to meet domestic demand,” he added.

 

In India, the prices of urad have shown an upward trend. On November 11, 2024, the Mumbai FAQ (Fair Average Quality) was recorded at ₹8,650 per quintal, while Chennai FAQ stood at ₹8,450 and SQ (Special Quality) at ₹9,200. These prices reflect a tightening of domestic supply, driven by reduced local production.

 

In global markets, prices for Burma (Myanmar) FAQ have seen some fluctuation, dropping from $1,005 per tonne on November 4 to $975 per tonne on November 11, signaling some price volatility, iGrain's analysis showed.

 

On future price outlook for urad, Chauhan said that the outlook for urad production in Myanmar is uncertain at the moment, although there is a possibility of increased sowing there.

 

He said that given the ongoing decline in domestic production and the possibility of increased imports, there is concern that India may need to rely even more on foreign supplies in the coming months, which could further drive up prices.

 

"In summary, the reduced urad production in India and the rise in imports suggest that the domestic market may face price pressures, especially as global supply dynamics continue to evolve," Chauhan added.

 

Tuar-

 

Tuar production has been on a declining trajectory over the past few years, with production decreasing from 4.32 million tonnes in kharif 2020 to 3.31 million tonnes in kharif 2022.

 

In kharif 2023, production increased slightly to 3.42 million tonnes, and the first estimate for kharif 2024 is 3.5 million tonnes, indicating a stabilization in production after years of decline.

 

Chauhan said that new tuar arrivals from Karnataka have started, and with the arrival of new goods starting from January-February, there is an expectation of higher availability of tuar in the market in the coming months.

 

Arrivals in India are expected to peak after December, ensuring better domestic supply in the near future, which could bring some relief to prices.

 

He said in sum, the tuar market in India is currently facing a mixed scenario—production is stabilizing after years of decline, and better weather conditions have supported yields in 2024.

 

"However, imports are still playing a significant role, particularly from African nations, which is putting pressure on domestic prices. Prices remain above MSP, reflecting the tightness in supply despite the expected increase in local production," Chauhan said.

 

He said that the situation could change in the next few months as the new harvest starts arriving, with the peak in arrivals expected after December. This could provide some relief to prices, but the level of imports and export dynamics from Myanmar will remain key factors to watch.

 

Overall, the data shows that foodgrain production in the 2024 kharif season, as per the first advanced estimate, is projected to reach an all-time high of 164.7 million tonnes, which is 5.7 per cent more than the previous kharif.

 

Among other crops, oilseed production is projected to rise by almost 6.5 per cent to 25.74 million tonnes, driven by strong output in groundnut and soybean.  Groundnut and Soybeans:

 

Groundnut production in this kharif season is projected at around 10.36 million tonnes, which is 19.6 per cent more than the same period last year.

 

Soybean output is estimated at 13.36 million tonnes, up from 13.06 million tonnes last year.

 

Robust domestic oilseed production should help reduce dependence on imported edible oils.

 

However, for farmers, it is less positive news, as oilseed prices, especially for soybean and groundnut, are largely trailing below their respective MSPs of around Rs 4,892 per quintal and Rs 6,783 per quintal. 

This is especially relevant for soybean farmers in poll-bound Maharashtra, where soybean is a major kharif crop.

 

To salvage the situation, the central government in association with the states jointly has started procuring groundnut and soybeans from farmers at MSP to prop up prices.

 

For groundnut, the procurement targets set by NAFED are around 1.74 million tonnes, with the largest shares coming from Gujarat (1.13 million tonnes) and Rajasthan (503,000 tonnes).

 

Procurement operations are underway in several states, with the process running through February 2025 in Gujarat and Rajasthan, and in December 2024 for Haryana. However, the procurement schedules for Uttar Pradesh and Andhra Pradesh have not yet been announced.

 

Traders said that given the lower market prices, the government's procurement efforts may increase, providing some price support in the future.

 

In the case of soybeans, too, the government is actively procuring soybeans from major producing states such as Karnataka, Telangana, Madhya Pradesh, Maharashtra, Rajasthan, and Gujarat.

 

Traders added that the procurement target for kharif 2024 is 3.23 million tonnes, with 33,660 tonnes procured so far.

 

The procurement operations are ongoing, with the highest procurement having occurred in Telangana (0.22 lakh tonnes). The procurement period runs from September 25 to December 23 in Telangana, and from October 21, 2024, to January 18, 2025, in Madhya Pradesh.

 

Overall, India's soybean market is experiencing a strong supply of new soybeans, with increasing government procurement likely to provide some support to prices. However, the market still faces downward pressure on prices due to the high availability.

 

This is especially relevant for soybean farmers in poll-bound Maharashtra, where soybean is a major kharif crop.

 

Among other crops, the first advance estimates for 2024-25 show sugarcane production projected at 439.93 million tonnes, approximately 3 per cent less than the same period last year.

 

Lower sugarcane production might necessitate the continuation of the existing export ban.

 

Cotton production is estimated to be almost 8 per cent lower at 29.92 million bales (1 bale = 170 kilograms).

 

This could be a major concern.

 

A preliminary assessment by the Cotton Association of India (CAI) suggests that due to lower production, India might need to import 2.5 million bales of cotton in the 2024-25 season (October to September), almost 43 per cent more than last year.

 

Similarly, exports could fall to 1.8 million bales in the 2024-25 season, down from 2.85 million bales, a drop of almost 37 per cent, largely due to reduced cotton output.

 

Cotton production is projected to drop as there has been a significant shift in acreage in the northern states of Punjab and Haryana, due to repeated pest attacks and declining yields.

 

In Maharashtra and Gujarat as well, farmers are increasingly shifting to more profitable crops like pulses, oilseeds, and even paddy, abandoning cotton.

 

Digital crop survey may replace 'Girdawari' system

 

For the first time this kharif season, the Centre deployed the Digital Crop Survey (DCS) in collaboration with state governments to prepare area estimates.

 

This survey, which may replace the manual ‘Girdawari’ system in the coming years, is a significant step towards achieving robust crop area estimates, an official statement said.

 

DCS-based Crop Area Estimation was conducted in the states of Uttar Pradesh, Madhya Pradesh, Gujarat, and Odisha, where 100 per cent of districts were covered under DCS in kharif 2024.

 

“This has led to a substantial rise in area under rice, particularly in Uttar Pradesh,” an official statement said.

 

Monsoon performance this year

 

The southwest monsoon this year was almost eight per cent above normal, leading to a surge in kharif sowing.

 

In total, kharif crops were sown in around 111 million hectares of land this year, which was almost 2 per cent more than the area covered last year and more than the five-year average for most crops.

 

Region-wise, the southwest monsoon was surplus in most areas, with central India leading with 19 per cent surplus rains, followed by southern peninsular India at 14 per cent.

 

The monsoon was in deficit in the northern and northeastern parts of the country, with a shortfall of 14 per cent.