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Jul 19 2012
Dry Monsoons: Hitting the Economy Hard

The dry weather from US to Australia has not only affected the agro economies but has also influenced the Indian farm output levels.  The monsoon, which represents 77% of annual rainfall in India, has fallen 22% less than the fifty year moving average on 1st June to 18th July. India is the second largest producer of rice, wheat and sugar. With such dry conditions and a conspicuous low farm output, the government is soon to review its export policies and curb the stockpile holdings by the traders.

The consumer price index, that had reached 10.02%, is the highest among the growing economies and could go above with the worst monsoon season pushing up food prices. The dry conditions in the US has already pushed up the global prices of corn and wheat and with bad weather news from the second largest producer of wheat and sugar, it could make things worse for the  global exchange market.  Few analysts have named this situation as a ‘global food crisis’. However, it is yet to be seen whether other exporting nations change their export policies or not, which could determine the certainty of the food crisis said Susakshina Unnikrishnan, an analyst at Barclays Plc in London. India has already extended a ban on its sugar, wheat and rice exports in 2009 following the worst monsoon season since 1972.

More than 235 million farmers depend upon the monsoons for crops such as wheat, rice, sugar and soybean. 15% of the country’s GDP is contributed through these productions and with already delayed sowing of these crops due to inadequate rainfall the food ministry soon have to pose a ban on exports of these produce which might help in curbing food prices to some extent.

Food-grain production reached a record 257.44 million tons in the year ended June 30 after a second year of normal rains boosted harvests, the farm ministry said. That prompted the government to lift curbs on exports of rice and wheat last year. But with this year’s unexpectedly worse monsoon and rallying global food prices, traders will soon have to be content with their last year’s stockpiles as a trade bet. With bad weather conditions hitting hard on the agro products the futures might witness a surge in the rally of prices. 

Note: The blog is the expression of the author’s opinion and cannot be deemed responsible for any losses incurred.

Posted by Mex R&D at 19/7/2012 1:58:21 PM

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