Will Monsoon Cheer Return This Year? – India’s Agricultural Acreage Prospects in 2018

In its May 2018 forecast, the Indian Meteorological Department (IMD) has predicted that the 2018 south-west monsoon (June to September period) will last 97% of the 50-year Long Period Average (LPA) with a margin of error of around 5%. This preliminary forecast, which is the IMD’s first of the season and has a big range to start with, describes a ‘normal’ Indian monsoon in 2018, which is widely considered a must for India’s agribusiness sector. If confirmed, it will not only boost farm inputs consumption, but also provide a solid base for above-average yields in major crops. The monsoon is crucial to India’s agriculture as it accounts for more than 70 percent of annual rainfall.

Because around 55% of India’s population is directly or indirectly dependent on agriculture, a normal monsoon will play a critical role in boosting agricultural output, resulting in higher consumption for most related sectors in India. In addition to IMD, several private forecasters have also predicted the 2018 weather event to be normal. Based on this monsoon forecast, Rabobank expects India’s total 2018 acreage to increase by 1% to 153.9m hectares. Summer crop acreage is expected to be 102.2m hectares vs. 101.5m hectares in 2017, while winter crop acrage could reach 51.7m hectares vs. 51.6m hectares in 2017.

Poor prices in pulse crops resulting from India’s current heavy carry-out stocks are expected to drive farmers away from pulses in 2018, resulting in lower acreage than the record-high levels seen in 2017. In cotton, last year’s lower realised yields as a result of heavy pest infestation in central-west and south India will push 2018 acreage down YOY.

Soybean, peanut, and corn are likely to gain majorly in summer season, eating into cotton and pulse acres from 2017. Return on investments in oilseed crops and corn have been better than those of pulses and cotton in 2017, due to steady prices and better-than-average yields.

The sugarcane crop is an exception, as cane farmers have planted the second-highest acreage in history for the 2018 crop. However, the record-high 2017 Indian sugar production resulted in plummeting prices domestically and globally, and big cane arrears in India in terms of farmer payments.

Rabobank expects sugarcane to remain a profitable crop to Indian farmers because of high margins and guaranteed payments by mills through government intervention. However, the 2019 sugarcane acreage could come down by at least 2% from 2018 levels because of the further rise in cane arrears due to another big expected crop in 2018, resulting in further delayed payments to growers.

The monsoon performance in north and central India during the second half of the monsoon period (August to September) defines the soil moisture levels needed for winter crops in India. Rabobank expects that a normal monsoon with good distribution in the second half could enable growers to slightly expand winter acreage, but most of the additional acreage pie will be taken by wheat and rapeseed in north and central India, at the expense of chickpea acres. Depressed chickpea prices in 2018 resulting from the record-high 2017 harvest are expected to reduce the chickpea acreage. India’s 2017 wheat production estimates (with the harvest completed in April 2018) have been quite varied, with the government expecting a record-high production of 98m tonnes, while some of the trade players estimate a crop between 90m to 92m tonnes. For 2018, a good monsoon could brighten up wheat crop prospects (which will be planted in October to December 2018) as it should result in a higher seeded acreage. However, combined with monsoon and post-monsoon rainfall performance, prevailing temperatures in the initial stage of wheat crop in the October to December period will define the initial growth and set the stage for 2018 wheat production estimates.

Author: Rohit Dhanda