(emphasis mine) [my comment]

Tuesday, 18 August 2009
India: One Disaster Away From Disaster

The stalled monsoon rains this summer across large swathes of northern India are set to see rice production in the country fall from 99.15 MMT in 2008 to just 84 MMT this year, according to the USDA. [If you still have any faith in USDA estimates]

Kariff rice production only has a short growing season, being sown from mid-May through to the end of August, and harvested October through to January. Rice acreage is estimated down around 20% this year, which is seen having a knock-on effect in demand for winter sown wheat.

The country relies on the monsoon season to provide almost three-quarters of the year's rain. So far this season rains have been 29% lower than normal (1st June - 12th Aug) on a national level, and considerably more than that in many parts of the breadbasket northwest of the country.

The government have been moved to assure the public that strategic reserves of rice and wheat held in state-owned stores are adequate. But with state-level elections coming up, what else are they going to say?

"There is no point in pressing the panic button," said the country's Finance Minister, playing down the potential effect of the drought on economic growth.

The government are already being urged to release some of these stocks onto the open market. After buying a record amount of wheat in excess of 25 MMT on the domestic market following the harvest in March/April, the quantity of wheat left in private hands is fast diminishing.

"There is hardly any wheat stock left with the private trade in the open market," said the president of an Indian Flour Millers Association last week.

Compare this map of Indian rainfall this monsoon season here, with a map of where winter wheat is grown here.

[map of Indian rainfall this monsoon season:



map of where winter wheat is grown:


]

Wednesday, 19 August 2009
Indian Drought Continues

Umbrella sales are down in India, where monsoon rains are now 27% lower than normal from June 1st to Aug 17.

The Indian farm minister says that 246 of the country's 625 districts are now affected, with the north west of the country the worst hit. That number officially stood at 207 only two days ago.

Production of sugar cane, rice and cotton are all seen sharply lower this season in a country with almost 1.1 billion people to feed.

The government have now put a limit on the quantity of pulses and sugar that traders can hold, in an attempt to prevent hoarding and profiteering.

Citigroup on Tuesday cut its estimate for Indian growth in 2009-10 to 5.8%, down from 6.8%, because of a downturn in the farming sector. it also increased its inflation forecast to 6% from 4% citing rising food prices.

Wednesday, 19 August 2009
India - It's Starting

The Indian government is set to release up to 5 MMT of wheat and rice from it's strategic reserves onto the domestic market, according to Indian media reports.

The move will come in an attempt to stem recent price rises due to shortages of supply of both commodities on the open market ahead of the festival season, they say.

According to the reports the government held 18.79 MMT of rice and 31.62 MMT of wheat in reserves as at the end of July.

Now here's an interesting thought, local reports suggest that there is virtually no wheat left in private hands in India, it all belongs to the government after they emerged as aggressive buyers back in March/May when the crop was harvested.

Domestic wheat consumption is seen at just shy of 77 MMT in 2009/10 according to the USDA, which equates to almost 6.5 MMT/month, and that's before we factor in any increase in demand due to a shortage of rice.

If the government's stocks really were 31.62 MMT [India doesn’t have 31.62 MMT of edible wheat] (and they may well have been less in reality, you know what those boys are like, it's not easy to nail wheat to the floor so it doesn't "go away") at the end of July, that's only five months supply, meaning that wheat in India will run out by Christmas.

And harvesting doesn't start until March.

No wonder the government are having to have their arms twisted to let some wheat go now. And where is the money going to come from to import the stuff in the new year? [Perhaps India’s forex reserves?]

Thursday, 20 August 2009
Is World Hunger About To Start In India?

It's already been a tough year for Indian farmers, with monsoon rains 27% below normal June 1 to Aug. 18, according to Reuters.

In the cane growing north west things are even worse, here rains are 37% lower in the period that normally provides around three quarters of the nations rainfall for the entire year.

The government are playing down the seriousness of the situation in the run-up to the elections, despite an alarming increase in suicides in rural communities, in a country where up to 70% of the population are dependent on farm incomes.

There's no need to press the panic button yet, the government have re-assured the people, saying that they will release around 5.5 MMT of wheat and rice from state reserves to stem rapidly rising domestic food prices.

According to media reports, the government held 18.79 MMT of rice and 31.62 MMT of wheat in reserves as at the end of July.

That might sound like a lot, but in a country with a population the size of India (circa 1.1 billion) it represents less than two and a half months worth of rice consumption and less than five months supply of wheat.

Last week the USDA cut it's estimate of rice production this season by 15.5 MMT from it's July prediction to 84 MMT, around 9 MMT lower than domestic consumption.

There is no official word yet on wheat production estimates for 2010's crop which will be harvested next March/April [USDA won’t change its wheat estimates until after Friday’s option expiration]. With wheat demand forecast to rise, due to shortfalls in rice production, that 31.62 MMT is going to start disappearing very rapidly in a country that normally consumes around 6.5 MMT of wheat a month.

Various media reports suggest that there is virtually no wheat left in private hands in India.

Lets do a little bit of random Nogger maths...

Wheat stocks 31.62 MMT divided by consumption of 6.5 MMT = 4.86 months of supply from the end of July, ie enough to last until Christmas.

That leaves India having to buy all it's domestic wheat requirements for at least Jan/Feb, and probably some of it's March needs too, lets say half of March, that comes to 16.25 MMT.

And suppose that wheat production is down on the back of the poor monsoon season? India only normally just about manages to cover it's own 77 MMT domestic requirement as it is.

We are starting to talk telephone numbers here.

They might need 16.25 MMT just to get them through to next harvest, plus next season could throw up a deficit, and all of that is still without building any reserve stocks whatsoever. And we haven't even factored in any extra demand yet either.

Blimey. Oh, and they've got no cash. And erm, the storekeepers might be lying, and there might not be 31.62 MMT in store at all. Why not buy it all on Milk Link terms?

"Hello, it's Milk Link Mumbai office here, yes it is very hot isn't it. I'd like to try 6.5 MMT of your free wheat every month for six months. If we like your wheat then we'll take an option to pay for it after that. No, don't hang up, I'll have 10 MMT of rice and you can throw in a pickle tray as well. You do deliver don't you?"

About India’s 31.62 MMT of wheat reserves

Back on April 24, I reported that India's wheat harvest is a complete disaster.

the real concern is over the quality of India’s wheat harvest:

The weather-beaten wheat arriving at many parts of the state is reported to be poor in parameters of weight, colour and maturity owing to early harvesting of the crop by rain-hit farmers. So even as procurement season in both Punjab and Haryana is drawing to a close and wheat arrivals are comparatively higher by 100 per cent this year, the discolored and shriveled grains with high moisture content may result in post-harvest losses and pose serious storage challenge, say procurement agencies.

4) Under the FCI Act, the government is obliged to buy all the wheat brought in my farmers, “whatever the quality”, encouraging high yields of poor quality.

5) Due to stocks overflowing with rotting wheat, longer storage of this year's wheat is likely.

6) Very few big companies have made notable purchases this year. Deflation fears are probably a big part of these delayed purchases.

7) Unseasonal rains and hail early this month have prompted farmers to bring wheat to the mandis early so as to not risk any crop damage.

"The grain quality in Punjab is not very good this time, as there has been lustre-loss due to the harvest showers. So, they are in a hurry to sell, knowing fully that there will be nobody to buy this wheat later"

8) Over one million tons of foodgrains were damaged in Food Corporation of India (FCI) godowns during the last decade. This figure is optimistic, as data given by FCI seems manipulated.

The FCI informed that 1.83 lakh tonnes of wheat, 3.95 lakh tonnes of rice, 22 thousand tonnes of paddy and 110 tonnes of maize were damaged between 1997 to 2007.

9) The FCI still has also has 119,000 metric tons of rotting imported wheat that it is desperate to dispose off.

10) Virtually all media stories are still expecting a "bumper wheat harvest" for India of “almost 80 million (800 lakh) tones”. There is no realization that India's wheat harvest is a disaster.


Conclusion: Wind, rain, and hail ruined India’s wheat crop. India’s policy of buying all wheat at the same price, “whatever the quality”, has made the situation worse by encouraging farmers to focus on quantity rather than edibility. Furthermore, grain reserves overflowing with rotting wheat means that the already poor quality of India’s harvest will be worsened due to lack of storage space. Finally, big companies have been holding off purchases due to misguided deflation fears, which means a lot of pent up demand chasing a lot of “discolored and shriveled” wheat.

India is now left with large stockpiles of rotting, inedible wheat and a harvest that is a complete disaster.

My reaction: It seems world hunger is about to start in India.

Lack of monsoon rains in India

1) So far this season monsoon rains have been 27% lower than normal (1st June - 18th Aug) on a national level, and considerably more than that in many parts of the breadbasket northwest of the country.

2) The Indian farm minister says that 246 of the country's 625 districts are now affected, with the north west of the country the worst hit. That number officially stood at 207 only two days ago.

3) The country relies on the monsoon season to provide almost three-quarters of the year's rain.

USDA production estimates for India

1) The stalled monsoon rains this summer across large swathes of northern India are set to see rice production in the country fall from 99.15 MMT in 2008 to just 84 MMT this year

2) After Friday's option expiration, the USDA is likely to downgrade India’s wheat production estimates too.

The government’s reaction so far

1) The government is playing down the seriousness of the situation in the run-up to the elections, despite an alarming increase in suicides in rural communities, in a country where up to 70% of the population are dependent on farm incomes.

2) The government have now put a limit on the quantity of pulses and sugar that traders can hold, in an attempt to prevent hoarding and profiteering.

3) The Indian government is set to release up to 5 MMT of wheat and rice from it's strategic reserves onto the domestic market.

4) These moves are an attempt to stem recent price rises due to shortages of supply of wheat and rice on the open market ahead of the festival season

The math of wheat consumption in India

1) India normally consumes around 6.5 MMT of wheat a month. However, Wheat demand is forecast to rise, due to shortfalls in rice production.

2) Local reports suggest that there is virtually no wheat left in private hands in India.

3) If the government's stocks really were 31.62 MMT at the end of July, that's only five months supply, meaning that wheat in India will run out by Christmas.

4) India will have to buy all its domestic wheat requirements for at least Jan/Feb, and probably some of March.

5) India might need 16.25 MMT just to get them through to next harvest. If there are issues with the quantity or quality of its wheat reserves, India's needs could be far higher still.

About India’s 31.62 MMT of wheat reserves

1) The quality of India's wheat harvest earlier this year was a complete disaster.

2) Unseasonal rains and hail in April prompted farmers to bring wheat to the mandis early so as to not risk any crop damage.

3) India's policy of buying all wheat at the same price, "whatever the quality", has made the situation worse by encouraging farmers to focus on quantity rather than edibility.

4) A large portion of India’s wheat reserves is made up of large stockpiles of rotting, inedible wheat


Conclusion: As I have been saying for months, the world is facing a food crisis in 2009. The situation is scary.