India's 2012 monsoon rains are likely to hit the southern coas t on time hardly 1-days left, the weather department said, brightening farm output prospects as farmers can plan t crops such as cotton and paddy on time and reap good yields. More than half of the country's workforce is employed on farms. Rural spending - on goods ranging from te levision sets to gold jewelry -- increases when monsoon rainfall is normal, making the rainy season an important part of the broader economy. The four-month long rainy season starts over the Kerala coast and covers the re st of India by mid-July. La st month, India's weather office forecast normal rains for the third straight year. It had said the country was likely to avoid a drought in 2012 as monsoon rains were likely to be average.

In India, the timely arrival of monsoon rains is cr itical for the sowing of summer crops such as rice, oilseeds, sugar cane and cotton. Around 60% of summer crops are rain-fed, and if monsoon rainfall is more or less on schedule and in sufficient amounts, crops that benefit from the rains account for around half of India's total agricultural output. Ti mely monsoons can determine whether India is a net importer or net exporter of some crops. All other indicators are positive, as weather systems are developing that will help the monsoon advance, officials said.

The monsoon has already covered mo st parts of the Andaman Sea and the Andaman Islands, the south and central Bay of Bengal and half of Sri Lanka. "The first phase has brought the monsoon over all these areas. We expect the next to brin g the monsoon over Kerala," an offi cial said. The weather department defines normal rainfall as 96%-1 04% of the 50-year average, whic h works out to around 85.5-92.5 centimeters. After arriving over the southern state of Kerala, the mons oon gradually spreads over most of the central and northern grain- and oilseed-producing regions by July. The rainfall is vital for farm output and economic growth. Farming accounts for about 15% of the nearly $2 trillion economy. India is the world's second-biggest producer of rice, wheat, sugar and cotton and al so one of the largest consumers, with a population of about 1.2 billion.

Although agri commodities have been seen to give good returns, before investing in them one should be aware of the fundamental factors that impact prices such as the demand -supply situation, climate & weather forecasts, the sowing and harvesting season in the domestic as well as international markets, government policies on international trade, foreign exchange fluctuations etc, as all these factors have a severe impact on the prices of commodities.

Focus- the Third Advance Estimates of Crop for 2011-12 seasons:

Record production of Foodgrai ns in the year 2011-12 the gove rnment released the 3rd Advance estimates of crops for the year 2011-12 on 23rd April 2012. According to the advance estimates, total food grains production is expected to set a new record of about 252.56 million tonnes (mt) as against a record 244.78 mt last year, an increase by 3.18%.

The government tried to boost the rabi production by increasing the Minimum Support Prices (MSP) of agri commodities from 15% to as much as 39%. Favorable weather conditions helped increase in the production of various foodgr ains like wheat but pulses and oilseeds suffered a setback as unfavorable weather conditions failed to increase the production.

Lower Pulses output

Overall production of pulses has shown a huge dent of 6.69%, down to 17.02 mt from 18.24 mt last year due to crop damage due to unfavorable weather conditions as well as lower sowing of Chana due to shift in more remunerative crops such as Mustard seed. The government tried to boost the production of pulses by increasing the MSP of Chana from Rs. 2100/qtl to Rs . 2800/qtl, an increase by 33%, and the MSP of Masur from Rs. 2250/qtl to Rs. 2800/qtl, an increase of about 25%, it failed to produce any results.

The production of Chana is expected to drop from 8.22 mt last year to 7.4 mt this year, a fall of about 10%. India is a net importer of pulses. A fa ll in the output of pulses will increa se our dependency on imports. Also, the Indian Rupee has depreciated and is currently at its historic al lows. Any increase in the imports will have an adverse impact on the already overburden ed food import bill and fiscal deficit.

Lower oilseeds output leading to increase in imports

Overall oilseeds output has witnessed a drag, and is expected to fall from its last year's production by 7.44%, down from 32.48 mt last year to 30.06 mt. The overall sowing of oilseeds declined from 89.96 lakh hectares last year to
86.24 lha this year, a fall of 4.14%, putting a pressure on the total output. Mustard seed output is expected to fall from 8.18 mt to 6.96 mt by 14.88%, as excessive cold conditions in the key producing regions thereby caused dama ge to the standing crop. Soybean output is expected to fall from 12.74 mt to 12.24 mt, down by 3.9%. Groundnut output is estimated to fall from 8.27 mt to 6.95 mt by 15.92% while the output in Castor seed is expected to shoot up by a whopping 71.5% from 1.35 mt to about 2.32 mt due to a higher sowing by fa rmers expecting better pric e realisation on the back of high exports last season. The fall in the output has led to an increase in the edible oil imports to 4.6 mt during November 2011- April 2012 from 3.5 mt during the same period last year, up by about 32%. The increase in the imports of edible oils coupled with th e depreciation of the Rupee will be a huge dent on the food import bill of the country.

Record Cereal production lead to higher procurement - According to the third adva nce estimates, the total production of cereals is expected to touch a new record of 235.54 mt, higher than 226.53 mt last year by 3.98%. This is mainly due to a bumper production in rice and wheat.

Production of rice and wheat is expected to hit a new record of 103.41 mt and 90.23 mt respectively. Production of maize and other coarse cereals is expect ed to fall from 43.68 mt last year to 41.91 mt, a fall of about 4%. The government estimates a new record production in wheat, at 90.23 mt as against 86.87 mt last year, an increase of 3.87% surpassing the target se t at 84 mt. Due to the record output as well as the need to store food grains ahead of the Food Security Bill, wheat procurement by the government agencies has increased by 23% to 27.83 mt compared to 22 mt last year (as on 11th May, 2012), and is expected to go up to 32 mt in the coming days.

Chana has witnessed a divergent performance this ye ar mainly on account of sharp drop in output amidst unfavorable weather conditions. Along with other major agricultural commodities, Chana prices follow seasonality pa tterns wherein prices start declining wi th commencement of harvesting in February and bottom out when harvesting reaches its peak by April end or first week of May. In the peak harvesting month of April, Chana futures gained
5.07percent, while D elhi Spot gained around 25% due to sharp drop in output in Rajasthan, which accounts for over 12-14% share in Indian Chana production. Further possibility of hike in MSPs of Kharif Pulses as recommended by the CACP has also created positive sentiments in the market. Harvesting calendar of Chana vis-a-vis seasonal price patterns Chana, the king of Pulses, accounting for over 45% share in total pulses output is a Rabi crop, sowing of which is done between October- December and harvesting commences by December end. The harvesting starts from the southern Indian states i. e. Karnataka and Andhra Pradesh, during the last week of December, followed by Maharashtra where harvesting begins in mid-January and continues till February. Maharashtra, the second largest Chana producing states accounts for over 12- 14% share in Chana output , while Karnataka and AP together accounts for over 9-10%. Harvesting in the largest Chana producing state, MP holding 40-45% share, commences in mid-February and continue s till April while Rajasthan, harvesting begins in April and continues till May.

Chana prices normally are at its peak in the month of January on the back of lower supplies in the markets. Fresh arrivals from Karnataka and AP in the month of Dece mber and January, hardly impact prices because the quantity of supplies are comparatively lower and they just meet the internal demand. With arrivals peaking up from Maharashtra in the month of February and from MP in the month of March, prices start declining gradually from February and they continue to remain under pressure till April -May. Generally, arrivals from MP an d Rajasthan have a significant impact on the prices as these states sell their produce to the neighboring states.

However, in the current year 2011-12, Chana prices have performed against its normally seasonality pattern. During the period February till mid-March, Chana prices made an all-time high of Rs 3440, as fresh arrivals from Maharashtra failed to pressurize prices as output in the state declined around 40%. However, mid-March onwards, prices declin ed and consolidated after the commencement of fresh arrivals from MP. Chana output in MP in the current season has remained almost same as last year. Again in the month April, when fresh arrivals from Rajasthan be gins, supplies were not sufficient to build selling pressure in the markets on the back of which prices have recently touch their all-time high of 4314 per qtl levels. Chan a output revised lower by 10% - Third Advance Estimates of Ministry of Agriculture According the third advance estimates released by the agriculture ministry, Chana output was revised downward to 74 lakh tonnes compared to 76 lakh tonnes estimated earlier, and about 10% lower compared to 82 lakh tonnes produced in 2010-11.

Although output in MP is higher by around 5% , a sharp decline has been witnessed in other two major producing states of Maharashtra and MP by around 33% and 42% respectively. A 4.3% decline in acreage to 89.5 lakh hectares coupled with 5.8% decline in yi eld due to unfavorable weather has resulted in lower output. Major decline in output is witnessed in Rajasthan and Maharashtra by around 33% and 40% respectively. Thus with lower output estimates coupled with negligible stocks of last year, Chana supplies may fall short of consumption demand and thus strengthen prices Increased consumption coupled with lower supplies to support upside in Chana Government of India data indicates that overall 2012-13 pulses consumption in India is expe cted to increase by 5.4% from 18.5 million tonnes in 2011-12, to 19.5 million tonnes in 2012-13. At the same time, pulses imports are expected to stay the same as last year, at 3 million tonnes. Estimated increase in consumption on one hand and lower output on the other hand ma y increase imports of Pulses in the current fiscal year. In addition, depreciation in Indian rupee may turn imports co stlier which may fuel upside in the domestic Pulses prices.

Yesterday chana for June future had dropped by Rs 47 and settled at Rs 4233 per quintal on profit booking due to fear of government intervention to curb spiraling prices. Supplies are likely to remain weak because of lower output this year but any sharp upside is unlikely because of fe ars of government intervention. The total daily arrivals of chana were hovering at the levels of around 1.20 lakh bags in the entire major mandies, unchanged from the last day. In Delhi spot market, chana fell down by -25 rupee to end at 4325 rupee per 100 kgs. Prices are getting pressure as special margin of 20% (in cash) on long side on all running contracts are still prevailing. Considering the new margin, the total cash margin now stands at 35 % on long side. Apart from imposing special margin, to conduct proper functioning of Commodity market, the regulator has also made revision in the contracts specifications like revision in the penalty stru cture and validation period.

Further, wef from June expiry, the staggered delivery option is applicab le on Chana contracts wherein seller can mark intention on the 5th of every month. Buyer or seller can take fresh position even during the tender period, but buyers need to be cautious of the delivery which can be marked to them if the Position is kept open at EOD.

Demand Supply Scenario

India's consumption of pulses is on the rise with an annual growth of around 5% but production is seen lower, which may lead to increase in imports this ye ar. However, rupee weakness may turn import costlier. Around 74% of Indian chickpea imports come from Australia. To curtail the domestic prices of pulses and fulfill the mis-match between demand-supply, Indian government incorpated the two subsidy scheme for importing pulses through designated agencies. In first scheme (December, 2006 to March, 2011), these agencies import 21 lakh tonnes of pulses while in second scheme(November, 2008 - April, 2012), 7 lakh tons of pulses have been imported from the agencies. Go vernment may take further such measure to match the demand supply gap.

Outlook: Chana is well supported above 4000 mark a gain can be seen on account of lower availability owing to hoarding by the stockiest. Further, rupee weakness is also supporting the upside in the prices. In the medium term fundamentals remain supportive for Chana prices on the back of supply concerns caus ed by lower output and growing consumption we can see prices testing 4800-4850 level. Support for chana is at 4080 below that could see a test of 3680. Resistance is now seen at 4550 above that could see a resistance of 4821.

ACTION: BUY CHANA @ 4100-4180 SL 3960 TGT 4560-4850.

Govt to open food grain quality control cells:

To reduce damage of food grains, the government today said it will open seven new quality control cells in the 12th Five-Year Plan (2012-17) to monitor quality of food grains during procurement, storage and distribution. "We have decided to start seve n new quality control cells (QCC) at Guwahati, Patna, Chandigarh, Jammu, Jaipur, Chennai and Ahmedabad in the 12th Plan," the Food Minister, Mr K. V. Thomas, said after inaugurating the modernised Central Grains Analysis Labo ratory (CGAL) here. At present, the States do not have a very strong quality control mech anism. The proposed new QCCs will help State agencies to ensure good quality grains are procured, stored safely and distributed via rati on shops, he said. Currently, there are eight quality control cells in different cities with small laboratories attached to them fo r physical analysis of food grains. In 2011-12 fiscal, officers of eight QCCs inspected 1,086 food storage depots, 532 procurement centres, 411 loading and unloading points, 251 rice mills and 1,201 ration shops.

As per the latest update a rogue cyclonic circulation in the western Arabian Sea seems to have all but upended prospects of a June-1 onset of southwest monsoon over Kerala . This was not unexpected, since global models have been forecasting the possibility of systems spinning up in the Arabian Sea and the Bay of Bengal around this time. An India Meteorological Department (IMD) update on Tuesday evening confirmed that the monsoon is stuck for a third day along Maldives-Colombo alignment. Sri Lankan media quoted the local meteorological agency as saying that the monsoon had set in over the island nation, though three days late. The IMD said the northern limit of monsoon continued to pass near Colombo in Sri Lanka for the third day on Tuesday. It expected conditions to become favourable fo r further advance of monsoon into parts of southeast Arabian Sea (off Kerala), Maldives, the Comorin areas and the rest of Andaman Sea during the next three days.