SW Monsoon 2017, Kharif Crop Prospects and Inflation Implications Commodities Research | India 13/10/2017 SW Monsoon 2017, Kharif Crop Prospects and Inflation Implications Rajini Panicker Lamba

SW Monsoon 2017 At the start of 2017, weather models had started to indicate a possibility of El Nino during second half of the year. However, by April 2017, the threat of re-immergence of El Nino declined as first half of 2017 progressed. By April and May, forecasts indicated a shift to El Nino neutral conditions during second half of 2017. El Nino neutral conditions, too, tend to be tricky, affecting the spread and quantum of monsoonal rainfall over Indian subcontinent.

SW Monsoon 2017 - Performance IMD’s initial forecast pegged total rainfall for Jun-Sep at the lower end of normal at 96% of Long Period Average. Actual rainfall during 2017 SW Monsoon was at 95% of LPA, just below the total quantum forecast.

SW Monsoon 2017 - Performance Source : IMD Monsoonal rainfall distribution has witnessed sharp deviations, resulting in deficient rainfall during second half of monsoon (Aug-Sep).

SW Monsoon 2017 – Kharif Crop Progress Source : IMD, GOI, Phillip Commodities India Moisture requirements are at highest during June, July, second half of Aug and first half of Sep. During planting phase, weak monsoon can delay or result in a decline in planted area. During grain formation/development stages (Aug/Sep), weak monsoon can impact yields. For shorter duration crops, such as pulses, deficient monsoon during July and Aug, tends to have negative impact on planting and growth and in turn crop yield.

2017 Kharif Acreage Shifts Source : IMD Rainfall and/ returns continued to influence the direction of kharif planting. Total oilseeds, pulses area has seen sharp fall in acreage in the back of weak rainfall during July and or Aug in key producer regions in central and southern India. Cotton has seen steepest increase across the regions, on the back of good price through 2016-17 season.

Kharif Production Forecast Source : Govt of India, Trade Estimates Monsoonal rainfall distribution variations has had a marginally negative impact on major kharif crops as indicated by the Government’s first advance estimates for 2017-18. Trade estimates for rice, coarse cereals and sugarcane are nearly inline with those of government. Trade estimates however suggest that pulses production could decline (6%) and oilseeds by (25% ) while cotton could increase by 16%, incrementally from the government estimates for 2017-18.

Inflation Forecasts

Inflation Forecasts CPI for September 2017 stood at 3.3% vs. 3.4% last month and 4.4% last year. Positive surprise came from a sharp fall in food inflation (-1.1% mom; lowest in 9-months) due to contraction in the prices of vegetables (-7.1% mom), fruits (-1.6% mom) and meat (-0.7% mom); higher prices were seen in cereals (0.3% mom), milk products (0.4% mom), and eggs (0.8% mom). All other non-food segments recorded higher inflation We estimate CPI inflation to trend higher as Food inflation to trend higher on lower y-o-y kharif production of cereals, oilseeds and pulses . Unseasonal rains in Oct could also have an adverse impact on kharif crops and vegetables. We there do not expect any interest rate reduction by RBI for FY 17-18.

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