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Govt cuts monsoon forecast towards 92% of average
With the Indian monsoon showing little signs of improvement, the government said on Monday that monsoon rains are now expected to be below average, reports said.
The government scaled down the India Meterological Department’s (IMD) latest forecast of rains at 96% of a 50-year average towards 92% of the average.
Rainfall between 90-96% of the long-term average is considered to be "below normal", according to the classification by the IMD.
Rains below 90% would be considered a drought, which the country last experienced in 2009.
The government is taking emergency steps under contingency plans which would provide for supplies of high-yielding seed varieties, ensure fodder availability and increased power supplies in some areas.
Drinking water will be prioritized over irrigation where necessary from reservoirs, a statement from the Prime Minister’s Office said, although reserves should be replenished after recent heavy showers in the foothills of the Himalayas, the north-east and parts of south India.
“The progress of the monsoon so far has not allayed earlier concerns,” the statement said. “The intensity and spread of rainfall over the next week or so needs to be watched carefully,” it added.
Even distribution is crucial and the insufficient rains have slowed the speed of planting crops such as rice, cereals, pulses and oilseeds including soybean. However, areas under sugar cane, mainly grown in irrigated regions, have been higher than in the previous year.
Less than normal rain may curb exports of rice, wheat, sugar and cotton and increase imports of cooking oils. India is the world’s second-biggest grower of wheat, rice and sugar, and the largest buyer of palm oil.
If the rains play truant for the rest of the season, there is a possibility of already high inflation being stoked further as demand may outpace supply, pushing up prices of fruits and vegetables.
Infocus News
IIFL recommends 'Reduce' on United Phosphorus
IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Reduce” on United Phosphorus.
According to IIFL report, United Phosphorus (UPL) reported net profit growth of 10% in 1QFY13, with sales growth of 19% offset by Ebitda margin contraction of 70bps.
IIFL said, "We raise our FY13 and FY14ii EPS estimates by 8% and 7% respectively and retain REDUCE."
The company has maintained its FY13 guidance of 15% sales growth, but adverse weather conditions across various key regions around the globe could create challenges over the rest of FY13.
Ebitda margins remain under pressure owing to the acquisition of the low-margin Brazilian business, DVA Agro. Any margin improvement consequent to UPL’s efforts will be fully visible only in FY14, report stated.
Working capital inched up slightly QoQ, and net debt increased further to Rs29bn. The Brazilian cropping season picks up in 3QFY13, at which time we expect a further increase in working capital.
We continue to expect lower margins and return ratios to pressure UPL’s earnings multiple. Our revised target price is 8x Sept-2014ii EPS, at a slight discount to closest comparable companies, Nufarm and Cheminova, brokerage added.
The report was published by IIFL’s Institutional Equities Research desk.
Monsoon update: Are we any better than 2009?
Domestic News
NSAI backs Industry on Seed Supply Challenges
The National Seeds Association of India (NSAI), the apex body of the seed industry in the country, has come out in support of seed producing companies indicating that the total supply of Bt cotton hybrid seeds by the industry has been more than adequate to meet the demand during the current Kharif season. It is possible that some of the hybrid brands may be in greater demand than others, but it would be incorrect to conclude that any such shortage is deliberate on the part of the seed producers. The commitment and endeavour of our members has been pivotal in ensuring adequate quantities of quality seeds to Indian farmers over the years.
K V Subbarao, President of NSAI says, “Hybrid seeds are produced through contract farmers. The production system is similar to any other agricultural crop production and is hence dependent on several variables such as rain, soil health, diseases and farming practices. These variables often create a gap between potential output and actual output. A seed is a biological product with long production cycle and making a particular brand of hybrid seeds available at a short time owing to a sudden spurt in demand becomes impossible.”
In a situation like this, the industry’s endeavour is to work with government and other stakeholders to educate seed dealers and farmers to optimise the use of Bt cotton seeds for that sowing cycle or kharif season. While the uncertainties associated with seed production is beyond the control of seed companies, there is a need, given the circumstance to formulate efficient seed supply strategies and to ensure adequate communication among stakeholders .
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International News
Soybean, corn futures up on livestock worries
Soybean, corn futures reportedly increases on farmer and investor concern about food for cattle and other livestock as a drought in the U.S. heartland devastates corn crops and pastures.
According to reports, the prime sources of cattle feed in increasing short supply, soybeans and soybean meal have emerged as an alternate feed source, raising their market prices.
Soybean and corn futures ended at record highs Friday. Wheat futures continued to trade at their highest level since 2008, reports added.