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Short-cycle Crops Likely To See Most Volatility If Monsoon Is Weak: Report

There are increasing risks of El Nino conditions developing during the monsoon

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The short-cycle crops such as vegetables will likely see the most volatility if the monsoon is weak, said Kotak Institutional Equities in a report. 

The report added that risks to Kotak's inflation estimates remain skewed to the upside due to the possibility of weak monsoons. 

Buffer stocks of foodgrains are likely to be used if cereals and pulses are impacted. We note that El Nino episodes in the past have not always led to high food inflation 

However, with the probability of El Nino occurrence increasing, agricultural output could be impacted. 

"For now, assuming a normal monsoon, we maintain our FY2024 CPI inflation estimate at 5.1 per cent. We continue to expect the RBI MPC to remain on pause in the upcoming June policy," the report added. 

The Indian Meteorological Department (IMD) has retained its long-range forecast for the south-west monsoon at 96 per cent of the LPA, implying normal monsoons. 

However, in the past couple of decades, actuals have mostly been lower than forecasts. 

There are increasing risks of El Nino conditions developing during the monsoon, though the IMD expects positive Indian Ocean Dipole (IOD) conditions to develop too. In the last two decades, most instances of El Nino have led to weak rainfall. 

The IMD forecasts normal to below-normal rainfall in many parts of north-west India and adjoining west-central India, northern parts of peninsular India, and along the foothills of the Himalayas. 

However, normal to above-normal rainfall is likely in most areas of the southern peninsula and north-east and extreme north India, and some areas of east-central India. 

Accordingly, crops and vegetables such as rice, onion, tomato, and tur can come under threat if rainfall is not sufficient. 

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Short-cycle Crops volatility weak Monsoon