Over the past couple of months, the main theme of GrainCents’s coverage on the pulse crops has been how India is scrambling to deal with the local pulse production glut. We touched on related news such as, namely:
1. The Indian government introducing import taxes on peas.
2. The Indian government thinking about subsidizing Indian pulse exports.
3. The Indian state Madhya Pradesh – one of the largest pulse growing areas there – deciding to interrupt its price support scheme (PSS) for key pulse crops such as masoor (red lentils) and channa (chickpeas)
As we said a while ago, whenever governments intervene in open markets, the counterbalance of supply and demand are upset, which usually results in a lot of unintended consequences.
Today, our reporting will touch on the weather developments in India. In the past week, there was a stream of market reports that covered the Indian Meteorological Department (MD) April 1st report on India’s temperature outlook for April to June 2018. The main message is that India is set to receive average monsoon rains in 2018.
At a first glance, this is bearish news for peas producers. Also, it goes hand in hand with other things in the wider Indian context such as developments on the political front.
A few weeks ago, Brennan provided Prairie pulse farmers with his insights into what game India was really playing when it came to pulses. Items such as trade matters and market factors are factors that he mentioned in his analysis but there was also room for Indian domestic political issues.
He foresaw two scenarios on how the Indian pulse import tariffs could drift away in the next two years.
One scenario was build on the assumption that trade ministers in major pulse producer countries such as Canada and Australia could get together and lobby India to surrender the pulse import tariffs and to open up the local market to pulse imports.This scenario could benefit pulse producers in Canada.
The second scenario hinged on the idea that if India doesn’t get 2018 summer monsoon rains, then a drought could strike India. This situation could trigger a lower domestic pulse production, a rally of the local pulse prices, and ultimately, the opening the local market for pulse imports coming from countries such as Canada or Australia. Again, this scenario could benefit pulse producers in North America.
However, with the monsoon rains pegged at the 97% of the long-term average, today, there is a very low probability of a monsoon deficit to occur. Thus, this is more bearish news for an already downtrodden pulse market.
To be clear, India’s MD defines average, or normal, rainfall between 96% and 104% of a 50-year average of 89 cms for the entire four-month rainy season, which starts in June.
How about the political situation?
Well, developments on the monsoon front come right on time for the current Indian majority party, the National Democratic Alliance led by Prime Minister Narendra Modi, as the opinion polls have not been doing to well.
The way how it works down there, timely monsoon rains lift farm production potential, spur economic growth, and put a cap on inflation. In other words, monsoon rains make everyone happy.
Without the rains, there is much more significant economic hardship as crops cannot be production and domestic food prices start to skyrocket. We saw this just a few years ago when back-to-back droughts caused the prices for the likes of peas (amongst other pulses) to climb to new record levels.
These are important arguments for the Indian Prime Minister Narendra Modi to take the benefit of this situation and call general elections next May as his party could potential enjoy a favourable image among the Indian voters in the rural areas.
To sum things up, with the monsoon rains falling within the normal average ranges, pegged at 97%, it is very unlikely that India will be struck by a drought this year.
The key question to ask though is whether or not chickpeas prices in India have plummeted enough for farmers there to pull back their acreage intentions. Why chickpeas? The likes of yellow peas have a strong substitution effect with chickpeas and so with less chickpeas getting seeded, this opens the door for potential more yellow peas imports. That being said, we’ve noted previously that yellow peas prices in India have remained relatively resilient, despite the gluttony of pulses available in India today.
Ultimately though, some of this answer will likely depend on not only Mother Nature, but also the political landscape.
This is a similar predicament to what North American farmers are facing as the threat of a late winter, combined with ever-changing trade winds, are pitting producers up against both Mother Nature and the political sphere.
While we all can agree that the weatherman is usually never 100% right, it’s worthwhile to understand that the conditions are shaping up to look like in the long-term. This in mind, one key reporting to watch going forward is when India’s (MD) will update its weather forecast again in June.
UPDATE 1-INDIA’S WEATHER OFFICE FORECASTS AVERAGE MONSOON RAINS IN 2018
NEW DELHI, April 16 (Reuters) – India is likely to receive average monsoon rains in 2018, the weather office said, raising the possibility of higher farm and economic growth in Asia’s third-biggest economy, where half of the farmland lacks irrigation.
Monsoon rains, the lifeblood of the country’s $2 trillion economy, are expected to be 97 percent of a long-term average, K.J. Ramesh, director general of the state-run India Meteorological Department (IMD), told a news conference.
“We see very less probability of a deficit monsoon,” Ramesh said.
Other than lifting farm and wider economic growth, a wet spell will keep a lid on inflation, potentially tempting Prime Minister Narendra Modi to bring forward general elections due in May 2019.
India’s weather office defines average, or normal, rainfall as between 96 percent and 104 percent of a 50-year average of 89 cms for the entire four-month season beginning June.
“The moderate La Nina conditions developed in the equatorial Pacific during last year started weakening in the early part of this year and currently have turned to weak La Nina conditions,” IMD said in a statement.
La Nina is a weather pattern that brings equatorial Pacific Ocean temperatures, rainfall patterns and winds closer to average.
The latest forecasts from global models indicate conditions over the Pacific will turn neutral before the beginning of monsoon season, the IMD said.
Good rains will spur the planting of crops such as rice, corn, cotton and soybeans, accelerating economic growth that rose 7.2 percent in the December quarter, its fastest in five quarters, compared with China’s 6.8 percent in that quarter.
Growth in the December quarter restored India’s status as the world’s fastest growing major economy.
On Monday, government data showed that India’s wholesale food prices fell 0.07 percent in March 2018 from a year earlier.
India’s weather office will update its forecast in June.