Food prices likely to reduce only after Diwali

PUNE: If Diwali was a little later this year, it may have helped consumers. In all likelihood, food prices will start to ease as the harvest comes to an end in November.

Thanks to a good monsoon and kharif sowing, prices of essential food items are expected to hold steady until the start of the harvest season and reduce marginally after that. However, overall food prices are higher now than during the festival season last year.

Commodities such as wheat, sugar and rice are currently costlier than they were last year. So even if they remain stable or decline marginally, consumers will pay more for them than they did last Diwali. Only cooking oils and pulses are expected to be cheaper.

If the monsoon and crop prospects are good, prices may start to decline substantially only from November, after Diwali, which falls on October 30 this year.

"The current commodity prices are very high and could remain elevated till Diwali. During Diwali, demand is at its peak but the harvest begins only from the second half of October," said Prerana Desai, vice president at Edelweiss Agri Value Chain.

The markets are still worried about the monsoon being affected by La Nina, a phenomenon associated with excess rainfall in India. Since the start of the monsoon season on June 1, rainfall in the country was 1% above normal, according to data from the India Meteorological Department on Wednesday.

"Weather risk is not over yet as there is possibility of La Nina affecting the monsoon rains and this risk will not allow the prices to come down substantially. Weather premium will remain till the harvest has been completed," said Desai.

Even with more widespread sowing and good rains, the markets say a clear idea of commodity prices will emerge only after the harvests have been completed. The prices of pulses, barring chana, are expected to decline further closer to the harvest period with prospects of a good domestic crop. Sowing of tur dal has been about 40% higher so far. The current ex-mill tur dal price of about Rs 128/kg is lower than last Diwali, when it was Rs 180/kg to Rs 200/kg.

"Moong prices are already at a two-year low. Prices of moong and urad may come down from the first week of August. The price of imported tur from Africa has already declined in June due to good sowing in India," said Nitin Kalantry, a dal miller from Maharashtra. Chana prices may remain on the higher side till October.

Some of the area under oilseed crops may have shifted towards pulses. However, the industry doesn’t expect this to lead to a substantial fall in production.

"Even if oilseeds acreage might be slightly lower this year as compared to last year, the productivity is expected to be higher than the last three years due to good monsoon," said Satendra Aggarwal, COO of Ruchi Soya Industries.

Although prices of some oilseeds such as mustard and groundnut are very high, cooking oil prices are under pressure due to excess stocks and global cues.

"Cooking oil prices are not likely to go up in the next three to four months but may decline marginally mainly because the global market is bearish. Malaysia has excess production of palm oil," said Praveen Lunkad, president of the Solvent Extractors Association of India.

Prices of wheat, sugar and rice are likely to remain higher than last year. Wheat prices are high because the market expects a lower crop than what the government estimates. Imported wheat is equally costly because of a 25% duty. Prospects of wheat prices will depend on the policies of the government and international prices. Wheat prices can come down if the import duty is scrapped. Rice prices may decline due to good sowing and prospects of above-normal rains, although they could still remain higher this Diwali than the previous year. The current price of the benchmark non-Basmati Sugandha variety is Rs 20.50/kg as against Rs 12.50/kg during October 2015.

Consumers may also end up paying more for sweets this festive season. Ex-mill sugar prices have increased to Rs 36/kg today from Rs 27/kg in November 2015. Even if prices remain stable, consumers will pay more for the commodity.

"We expect sugar prices to remain stable till September," said BB Thombare, chairman of Natural Sugar and Allied Industries. However, some traders believe that sugar prices may surge before Diwali, as indicated by the October future prices of about Rs 38/kg on the National Commodity & Derivatives Exchange Ltd.