Not all sunshine and rainbows for agricultural input providers
1 min read.Updated: 02 Sep 2019, 12:03 AM ISTR. Sree Ram
A long dry spell since the onset of monsoon means sowing has tilted to short-duration crops that need fewer pesticides
Low yields and crop damage due to excess rains is estimated to impact foodgrain production in the current kharif crop season
The late revival in monsoon rains has brought a much-required reprieve for agricultural input providers. The delay in the onset of the monsoon has impacted sales, making the June quarter one of the weakest for most farm input providers. But the scenario has now changed. “Amid the pickup in monsoon and contraction in sowing deficit, we expect performance to stabilize in Q2FY20," said analysts at Edelweiss Securities Ltd. It said Q1 was one of the weakest ones for the sector.
Importantly, the rebound in the monsoon and the resultant improvement in water availability bodes well for the winter or rabi crop season. “Abundant rains have improved chances of healthy rabi production because of recharging of groundwater resources and higher reservoir levels," Dharmakirti Joshi, chief economist at Crisil Ltd, said in a statement.
Low yields and crop damage due to excess rains is estimated to impact foodgrain production in the current kharif crop season. But higher prices due to better demand for soya bean and cotton, and a price rise in foodgrain due to low production is projected to improve farm realizations, points out Crisil.
Crisil Research estimates a 10-12% rise in farm profit from field crops in kharif season 2019.
Not everything is expected to be sunshine and rainbows post the monsoon. Heavy rain in a short period of time does not bode well for the farm sector as it hurts yields and crop cycles, pointed out Elara Securities (India) Pvt. Ltd.
A long dry spell since the onset of the monsoon rains means sowing has tilted to short duration crops, which have a lower requirement of pesticides. So even as the scenario is not as bleak as it was at the beginning of the kharif season, sales of farm input providers may not also see a significant rebound neither, said Aditya Jhawar, an analyst at Investec Capital Services (India) Pvt. Ltd. But raw material cost inflation could weigh on profitability of the agricultural input providers.
Input costs for fertilizer companies moderated. But costs for agrochemical firms remain elevated. “Margins are facing pressure from rising prices of raw materials and remain an overhang. Input prices of chemicals are rising primarily due to supply disruptions from China," added analysts at Edelweiss.