Monsoon Perils and Grain Production; Kartina and its after effects

Monsoon Perils and Grain Production

It may not be official as yet, but monsoon seems to be over as of now. Officially the monsoon season ends on Sept 30 and there would a 10% deficit then, if there is a little progress. Current deficit is about 6%. The areas in the deficit zone are west Rajasthan; west Uttar Pradesh; Jharkhand; Nagaland-Manipur-Mizoram-Tripura; coastal Andhra Pradesh and western Madhya Pradesh. Reports suggest that the soya crop which is the main crop of the area (Madhya Pradesh and parts of Rajasthan) is in danger of withering, if there is no rainfall in the next 2 – 3 days.

As per Indian Meteorological Department, a new touch is forming which might bring rainfall over all four southern States, Kerala, Karnataka, Tamil Nadu and Andhra Pradesh in the next 2 – 3 days.

Amidst all this talk about monsoon, the grain prices have shown an upoward trend. Yellow corn prices averaged at Rs.6010 ($138) per MT. The local corn traded at Rs.6900 ($159) per MT. The highest prices were reported in Gujarat. The harvest still about a month away, increased prices will effect the maize user industries, bring down profits.

The prices in US remained almost same as last week. CBOT closed at $2.035 per bushel ($80.18 per MT) for September delivery. The December delivery was marginally lower than last week at $2.1725 per bushel ($85.60 per MT). The FOB prices were $102 per MT for October and $104 per MT for November delivery.

The freight rates are expected to go up higher in the wake of Kartina, higher demand of grains in the world market and higher fuel prices.

As regards increased demand in the world, China's grain demand is predicted to continue its slow growth in the next four years, with grain consumption increasing 0.9 percent annually. In India as per the analysis the maize demand is expected to grow by 4.1 percent in 2005-06, whereas the production is expected is decrease by about 5.7% over last year. The increase in consumption is due to the increased broiler placement and the decreased production of corn due to the erratic monsoon.

Kartina and its after effects

The start of the week saw hurricane Katrina hitting the US gult coast and hitting it hard with 232 km per hour winds, damaging property worth billions of dollars and taking almost 10,000 lives (No one can predict, but the number was an estimate given by CNN.com).

The hurricane has damaged the city of New Orleans, the port of New Orleans, refineries in the Gulf of Mexico and the rail link between Mississippi and New Orleans.

The port handles almost 62 percent of all grain and soy that is exported out of US. The grain travels by barges and rail cars to the port and is loaded to the ships. On any given day 2 millions bushels (50813 tons) of grain leaves US. If there is any stoppage of the trade due to the closure of the port, it will have a cascading effect. Due to the current slowdown, the effect can already be felt. With harvest round the corner, the pressure to store the new crop will be immense. Some analysts have forecasted losses to the $1 billion on account of disrupted traffic, another $ 1 Billion is estimated on account of crop losses in Louisiana, Mississippi, Alabama, Florida and Tennessee.

The biggest danger is that Katrina has seriously damaged Gulf Coast refineries, which account for 10% of U.S. refining capacity. Experts warned that gasoline prices -- driven higher because of storm-related damage to the Gulf Coast's energy infrastructure -- were the greatest concern and might be approaching levels that would soon ripple through the economy. If that happens, prices of basic items could soar, pushing up inflation. As per reports the gasoline prices are already touching $3.55 per gallon (Rs.40.85 per litres).

With the grain movement being slow the and likely to remain slow for coming months, the world will probably be little starved and possibly taking prices a little higher.

India may also be in shock, if the world prices of crude oil go up. Indian Oil Corporation has already states that Government should increase the price of gasoline by Rs.7.50 per litre ($0.17 per litre) and diesel by Rs.5.00 per litre ($0.11 per litre). What would be the effect of this on inflation, probably no one has guessed.

Regards
Amit Sachdev
bluecross303@gmail.com
Sept 03, 2005