Indian Corn Markets Hinge on Supply, Acreage Trends

Indian Corn Markets Hinge on Supply, Acreage Trends

The Kharif maize production of India, which stood at nearly 20 million tonnes in 2017-18, dipped last year to below 19 MT. The infestation of the dreaded pest Fall Army Worm (FAW) (Spodoptera frugiperda), coupled with weak monsoon rains witnessed in key producing States such as Karnataka and Telangana have shrunk the corn output this year.

As foreseen by the initial trends in the current Kharif season, the growing corn consumption, coupled with remunerative market prices over the past few months, has not yet translated into higher maize acreage during the 2019-20 cycle.  According to a preliminary report on Kharif sowing, the area brought under maize/ corn crop during June 2019,  stood at only 300,000 hectares across India — 33 percent lower compared to the corresponding acreage in 2018 at 4,50,000 hectares, which was the steepest among Kharif crops like paddy, pulses, oilseeds, and sugarcane.

The poultry-feed and starch industries, which rely heavily on this grain, are facing tough times in view of the mounting prices. Shortage of raw material has led to high production costs and under-utilization of capacities with the starch industry fearing the shutting down of plants. Owing to the short supply & growing demand by the poultry sector for feedstock, the domestic corn prices witnessed a record high of Rs 2,300 per quintal (100 kg) in the last few months. It was however expected that the area under crop would see an upsurge with farmers looking to encash the spurt in demand and market potential. 

In view of the falling output and rising demand from the poultry and corn starch manufacturers, Indian government steps forward to import a total of 84,000 tonnes of Non-GMO corns from Ukraine. The switch in India’s position as an importer has brought cheer to the rival corn suppliers Argentina, Brazil & USA which have now replaced New Delhi in the South Asian markets.

The country’s first such purchase in 16 years was initiated to offset the shortage triggered by the drought weather & armyworm infestations. The import was consummated in two shipments of 57,000 tonnes & later 27,000 tonnes of non-genetically modified corns from Ukraine at the rate of $205 per ton including insurance and freight.

Maize prices, which hovered around ₹1,100-1,200 a quintal last year is now ruling between ₹1,700-1,800 levels across several markets of the country. In fact, the modal maize prices in some markets had crossed ₹1,900. Last year, the Centre had increased the MSP for Kharif maize by Rs 275 per quintal, or 20 percent, to Rs 1,700 per quintal for 2018-19, from the Rs 1,425 earlier.

The MSP rates fixed by the Government of India has given a significant boost to the farmer’s income. This historic decision of the Cabinet Committee on Economic Affairs (CCEA) has apparently redeemed the promise of the pre-determined principle of pegging the MSPs at a level of at least 150 percent of the cost of production.  The MSP figures of maize hovered around these levels in the past years:

Maize MSP India

Following the deficient supply & unprecedented price hike, export of the maize commodity is also becoming unviable and uncompetitive. The price of maize has risen 75-80 percent in the past one year from Rs 12 per kg to Rs 20-21. In consequence, the prices of starch and liquid glucose also experienced a sizeable hike, with starch selling at Rs 31-32 a kg. India’s starch and value-added demand, however, is very good, especially from the pharma and textile sectors.

Maize is still considered by Indian farmers as a feedstock crop and though MSP is at best competitive to other Kharif crops, including paddy and pulses, yet it fails to offer many incentives to farmers to adopt its cultivation as a staple crop.

 

Gleanings:

  • The cash crop of Indian farmers, maize records the steepest fall in sowing among Kharif crop in June 2019
  • The Centre allows the import of 100,000 tonnes of feed-grade maize by state-run trading firms – NAFED and MMTC at a lower 15% import tax.
  • Maize prices are expected to soar in the coming months over supply constraints.
  • High market price and demand fail to enthuse Indian farmers to grow maize.
  • Industry pegs the maize market prices at as high as ~2,200 per quintal (100 kg)
  • The steep rise in the minimum support price of maize guarantees 50% return on input costs to the farmers, which is a politically astute move that can ease farm distress & boost rural demand if implemented effectively, but it can also stoke inflation.
  • The upsurging spot maize prices are driving end manufacturers including starch /poultry & livestock feed manufacturers to panic stocking.
  • Indian corn yields as compared to the other countries are subjacent & alarming, which calls for a significant leap in the near future.
  • The sub-optimal corn supply could potentially impede the growth momentum of the industry and also hit exports.
  • In the wake of rising prices & concerns about a poor corn crop, the government has also triggered the move towards reducing the import duty which is aimed at improving domestic availability of the commodity.
  • Opening imports shall give an intermittent relief to the domestic industries, though the quantities will not suffice the actual requirements of the starch/poultry feed manufacturers.
  • Maize prices over the past few months are offering windfall, which however does not guarantee continuity. 
  • The farmers are still skeptical about the market demand, the sustainability of the MSP structure and formalization of the maize economy.
  • The consumption trends open up vistas of opportunity for India’s Maize sector. However, it’s time to check if we are ready to capitalize on this opportunity. Although India has received Maize production level of 26 Mn MT, it would require 45 Mn MT of Maize by the year 2022.

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