Rice Harvest in India Set to Drop as Drought Curbs Sowing

Rice production in India, the world’s second-biggest grower, is poised to slump from a record as the worst monsoon since 2009 reduces planting, potentially lowering exports and boosting global prices.

The monsoon-sown harvest may be between 5 million metric tons and 7 million tons below a record 91.5 million tons a year earlier, said P.K. Joshi, director for the South Asia region at the Washington-based International Food Policy Research Institute. Production of food grains, including corn and lentils, may slide as much as 12 percent from 129.9 million tons a year earlier, he said.

Rice has rallied 6.3 percent in Chicago since the end of May on prospects for a lower Indian crop and export curbs, adding to global food costs that the United Nations estimates jumped 6.2 percent in July. Corn and soybeans have soared to records as the worst U.S. drought in half a century killed crops. Global rice production this year will be smaller than previously forecast, according to the UN’s Food & Agriculture Organization.

“A lot of importing countries looking toward India for more competitive prices are likely to shift to Thailand or Vietnam,” Abah Ofon, an analyst at Standard Chartered Plc, said by phone from Singapore. “If we see a drop in India’s rice output, it is not going to have a significant impact on global inventories. There may be slight moderation in exports.”

Export Restrictions

World reserves may touch 102 million tons by the end of the season, the most in at least five years, according to the London-based International Grains Council. Thailand is building the biggest stockpile in at least five decades after Prime Minister Yingluck Shinawatra began a policy in October of buying from farmers at above-market rates. Stockpiles may reach 12.1 million tons in 2012-2013, says the U.S. government.

A decline in output may prompt India to regulate exports, said Harish Galipelli, vice president at Kochi-based JRG Wealth Management Ltd., which advises traders. The government may either impose volume limits or fix a minimum benchmark export-price in October when crop outlook will be clearer, he said.

India exported about 5.7 million tons of non-basmati rice as of July 20 after a ban on exports was lifted in September, according to the food ministry. State reserves may help the country check the increase in prices, IFPRI’s Joshi said.

Rough-rice for delivery in September fell 0.3 to $15.115 per 100 pounds on the Chicago Board of Trade at 5:29 p.m. Mumbai time.

Food Crisis

The world may face a food crisis very soon as drought parches corn crops in the U.S., IFPRI’s director-general Shenggen Fan said Aug. 14. Corn surged to a record $8.49 a bushel on Aug. 10.

The FAO on Aug. 6 cut its estimate for India’s crop by 9.8 million tons to 147.7 million tons of unmilled rice on “slow and erratic advancement” of the southwest monsoon.

The deficient rainfall will not have any major impact on the rice output, Harish Rawat, junior farm minister, said in New Delhi today. Food grain production this year may exceed the 218.1 million tons harvested in 2009-2010, when the nation was hit by the worst monsoon since 1972, he said.

The June-September monsoon rains are forecast to be 85 percent of a 50-year average, according to India Meteorological Department. Rainfall was 15 percent less than normal between June 1 and Aug. 15, department data showed.

“Policy makers have tools to reduce the impact, but the drought comes at a difficult time with inflation running high, growth sluggish, and the fiscal space limited,” Leif Eskesen, Singapore-based chief economist for India and Southeast Asia at HSBC Holdings Plc, said in a report. “This means policy makers will have to walk a tightrope.”

India should import edible oils and pulses to meet a shortage, IFPRI’s Joshi said. Inflationary pressure will be there for pulses, oils, vegetables, milk and meat, he said.

The wholesale-price index in July rose 6.87 percent from a year earlier, after climbing 7.25 percent in June, the Commerce Ministry said on Aug. 14.

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