India has the potential to be a bright spot for Australian growers in 2016, after poor weather has stoked demand for imported agricultural commodities, a Rabobank report said.
It said the Indian demand for pulses has been reflected in Australian pulse prices over recent seasons, while a below-average wheat crop in 2015/16 looks set to drive India’s demand for imported wheat, which Australia is well positioned to supply.
While India is expected to have a positive impact on pulse and wheat prices in the short term, the report offered a word of caution. High pulse prices are incentivising increased plantings across the globe, with the potential for a significant increase in global pulse supply, while an improved weather outlook for the 2016 monsoon could see Indian wheat production rebound in 2017, it warned.
According to the report, India’s ability to impact global prices was evident across the pulse complex last season. Chickpea and lentil prices both surpassed $1,000/tonne at points throughout the 2015/16 season, which is well above long-term average prices.
Demand for pulses in India equates to about 22 million to 23 million tonnes per annum, while production usually averages between 18 million to 19 million tonnes, leaving a deficit that needs to be filled by imports.
In 2014/15, pulse production totalled 17.2 million tonnes, creating a larger production deficit that usual, leading to the increase in demand for imports, and the consequent high prices seen across global pulse markets. Importantly, the 2015/16 pulse crop, which is currently being harvested, appears to also be down compared to average production. “This bodes well for India’s demand for imported pulses moving through 2016 and into early 2017,” the report said.
However, it said, what must be taken into account is the increase in global pulse supply that we are likely to see as a result of the high prices. For example, Canadian lentil acreage is tipped to expand to record levels in 2016/17. Production is expected to total 3.2 million tonnes, up 32 percent year on year. Putting this in perspective, Australian lentil production totalled roughly 250,000 tonnes in 2015/16.
The report further said that the Indian crop is forecast to be well down compared to previous years, largely as a result of poor weather, with the USDA forecasting production of 86.5 million tonnes, down 4 percent on the five-year average of 90.4 million tonnes, while private forecasts are ranging from 80 million to 84 million tonnes.
“So trade estimates are placing imports at anywhere from 0.5 million to 8 million tonnes, with 2 million tonnes seeming likely at this stage. Importantly, Australia is well placed to supply a portion of this import demand. In 2015, India imported 512,000 tonnes of wheat, with 93 percent coming from Australia, illustrating Australia’s ability to capture Indian import demand. ”
There is no doubt that India presents potential upside for Australian grain and pulse prices in the short term, which is positive in a global market awash with agricultural commodities, the report said. Watching the global supply response across pulses and an improved 2016 monsoon in India however will be crucial in determining the longer term impact India will have on the Australian grower, it added.