1st Rabi Crop Estimates for 2015-16

With the Rabi Sowing season coming to its end, NBHC Pvt. Ltd. is releasing its first Rabi crop estimate for the year 2015-16. Before coming to the actual estimates we would like to highlight few weather developments which have put the Indian crop production on the back foot. In the current season the monsoon had arrived and spread all over India almost a month ahead of the scheduled time, but with the backdrop of El Nino (one of the strongest since 1997) and unusual warming of the Indian Ocean Dipole the monsoon fell short by 14 per cent on the seasonal basis with increased inequitable distribution. Moreover, the Central Water Commission which monitors 91 major reservoirs in the country has reported capacity of 80.26 BCM as against 100.39 BCM on 10.12.2014 (last year) and 105.05 BCM of normal (average storage of the last 10 years) storage. Current year’s storage is 80 per cent of the last year’s storage and 76 per cent of the normal storage. Owing to weak monsoon and lack of rains from the retreating monsoon (winter rains) the current winter crops is likely to face severe stressful growing season leading to lower output. 

As per our assessment and market feedback on sowing crop progress, the total Rabi food grain’ production is expected to decline by 13.38 per cent over last year to 111.47 million MT. The drop in the production estimate is because of the recent delayed sowing of Rabi crops and expectation of lower yield in major producing areas. Wheat is expected to show a decline in area and production by 16.27 per cent and 16.51 per cent respectively over last year owing to expected decline in yield. The lack of residual moisture, lower rains from retreating monsoon, increased incidence of pest & disease and delayed sowing is likely to be the major cause for the shortfall. In most of the Rabi crop there has been a marginal to significant fall in the acreage which itself is painting a gloomy picture to the overall Rabi crop outlook for the coming season of 2015-16. 

In the pulses sector, we expect the area under Chana to marginal up by 3.12 per cent over last year and the production is likely to up by 6.73 per cent to 7.69 million MT. But overall, the total Rabi pulses production is likely to decline by 10.82 per cent over last year. 

The oil seed sector is likely to see a decline of production by 2.13 per cent. The decline of 8.92 per cent in production is also expected in case of groundnut over last year.

Commodity Market to Become More Robust Under SEBI

The merger of SEBI and FMC is an epic event in the history of Indian commodity market with which the regulation of the commodity derivatives market shifts to SEBI under the Securities Contracts Regulation Act (SCRA), 1956. SCRA is a stronger law, and gives more powers to SEBI than the Forward Contracts Regulation Act (FCRA) offered to FMC.

Prior, to the merger The FMC had been regulating the commodities markets since 1953, but it was seen to have lacked the muscle to tame the alleged irregularities in this market segment. It was a low-profile regulator and was headed by a government appointee and it conducts its activities through plan and non-plan funds from budget grants and its staff recruitment system was dependent on what the government plans. In the absence of a powerful regulator, the commodities market has been more prone to illegal activities like ‘DABBA TRADING’ (where a stockbroker executes a customer’s trade done through his local books, but not reflecting at the exchange, with the hope of making some gains at a future date) compared to the better-regulated stock market. With the official merger on 28^th September 2015, one can now expect a stronger regulation as SEBI is an autonomous body with wide, sweeping powers to control and develop capital markets, mutual funds, exchanges and intermediaries. Apart from the wiliness of department of consumer affairs (DCA), Government of India, FMC had also taken up several measures to bridge the regulatory gap between securities and commodities markets which includes tightening the shareholding norms of commodity exchanges, improving corporate governance and revamping risk management, warehousing and investor protection norms.

FMC merger with SEBI has now opened up new challenges for the commodity regulators. The merger is aimed at streamlining the regulations and curb wild speculations in the commodities market, while facilitating further growth there. Expectations from the merger are high from market participants, investors and the government itself. Accordingly, the SEBI from day one is on the move. It has created a separate Commodity Cell and has set up new departments for regulation of commodities derivatives market. It has formed a Commodity Cell by posting its senior officials, while two internal departmental committees (one each in Integrated Surveillance Department and Market Intermediaries Regulation and Supervision Department). It has also sought help from the Agriculture Ministry with regard to the data sources for the prices and to improve the methodology for determination of final settlement price. The major challenge for the SEBI is the regulation of the new regime is that the underlying commodity derivatives — the physical commodity — which is not within the regulatory purview of SEBI. The quality checks and safe-keeping of physical commodities at warehouses is carried out by an independent agency, the Warehousing Development and Regulatory Authority (WDRA). A convergence of regulation between SEBI and WDRA will be required to prevent spot future financial irregularities. The other major challenge is the launch of new financial products / instruments of trading which is certainly daunting under present state of commodity market. In India, future trading in food-related commodities always has an element of political sensitivity, unlike equity derivatives. But, if new products like options or index futures in commodities do not come or new participants do not enter the markets, it will be merely a case of ‘regulatory laziness’ which the India’s commodities derivatives markets cannot afford at this stage.

Regulatory expectation for the SEBI is high with much tougher standards as it has regulated the markets efficiently and effectively for over 25 years, making Indian Security Market as one of the vibrant markets in world. Strict guidelines and transparency in functioning of SEBI would also help commodities market to gain confidence of traders. It has better trained human resources and management practices that can help SEBI to improve conditions in commodities exchange. Most of the countries except Japan and US have a same regulator for commodities and securities, thus our commodity market would be increasing aligned to the international practices and would enhance the financial integrity. It will allow introduction of much needed Commodity market reforms as SEBI has been willing to introduce trading in commodity options and indices after initial one year of transition which would allow small farmers to sell their at committed rate at a future date. Under SEBI all commodities will govern by single strong act i.e. Securities Contract Regulation Act which covers all aspects and helps to monitor the commodity prices and identify defaulters. It would streamline the transaction process provide confidence better opportunities to investor in commodity derivatives. SEBI is in support of introducing foreign institutional investment in commodity trading, which was not allowed earlier. This would increase foreign participation and increase liquidity.

The first change action in the commodity market is already felt in the market with the SEBI issuing norms for traders of commodity derivatives exchanges that need to be complied with. The existing members of commodity derivatives exchanges will be required to make an application for registration and such existing members of commodity derivatives exchanges will be required to comply with the Securities Contract (Regulation) Rules, 1957, within a period of one year from the date of transfer and vesting of rights and assets of FMC with SEBI -- by September 28, 2016. For new members, the new regulations will apply from the beginning. The other changes likely to be brought in the commodity market are that the SEBI would act against entities violating the Essential Commodities Act, if they were present in the commodity futures markets. SEBI may look at improving the physical delivery mechanism and warehouse logistics. The last couple of years have seen a host of warehousing reforms towards stronger governance and improved quality standards in exchange-approved warehouses. With the warehousing sector under the regulation of WDRA, a stronger and synergistic approach between the two regulators would pave the way for robust market development. Moreover, with the equity and commodity regulators merging, equity exchanges can open commodity platforms and vice versa.

The extent of market intervention measure in the Indian commodity market has its own inbuilt challenges. Most of the commodities are controlled by government in sense of minimum support prices, stock holding limits, import and export restrictions even non-agricultural goods like gold , oil has government intervention MSP, import-export regulation, invoking provisions of Essential commodities Act distort market trade and commodity prices. For smooth processing of transactions SEBI has to ensure the no/lower government interventions. It needs to expand its infrastructure because commodities are physical goods. It also needs to develop proper parameters to ensure there won’t be any troubles while delivering. Price discovery has been a major issue in commodities trading, and if the SEBI addresses that concern, it will be a big confidence-booster for participants. SEBI has to focus on how prices and benchmark rates are fixed in commodity markets and also look at the possibility of having products like options and futures.

NBHC Kharif Crop Estimates for 2015-16 (Final)

With the Kharif sowing season almost on the verge of completion and early harvest arriving in the market, we at NBHC are releasing our Final Kharif Crop Estimate - 2015-16. As per our analysis and industry’s feedback on the crop progress and the status of the current crop harvest, the total Kharif Cereals production is likely to decline by 3.72 per cent. The reason for the shortfall is very much evident. The current season the monsoon had arrived and spread all over India almost a month ahead of the scheduled time, but with the backdrop of El Nino (one of the strongest since 1997) and unusual warming of the Indian Ocean Dipole the monsoon fell short by 14 per cent on the seasonal basis with increased inequitable distribution. A situation of meteorological drought in regions of Maharashtra, Karnataka, Uttar Pradesh, Bihar, Andhra Pradesh and Telangana had taken a big toll on the Kharif crops in these regions. Based on the above conditions we have come to a conclusion that the total Kharif crop production scenario for the year 2015-16 would be on the lower side compared to 2013-14 and 2014-15.

Our first report was released on 22nd August 2015. In our first report we had estimated a drop in the acreage for Maize, Bajra, Pulses, Cotton and Sugarcane. We stick to our estimate of lower acreage on the above crops with mild adjustments.

As per our estimates, the overall cereals production for the 2015-16 is expected to be marginally down about 3.72 per cent over 2014-15 (116.35 million MT against 120.68 million MT). Amongst the cereals, Maize is expected to decline by 25.88 per cent to 13.02 million MT and Bajra is expected to decline by 14.24 per cent to 7.92 million MT. For Rice, we are estimating a marginal drop in the production by about 6.72 per cent owing to decline in the productivity in West Bengal, Uttar Pradesh and Chhattisgarh and prevalence of dry weather in major growing areas.

In the pulses sector, amidst extreme dry conditions and lack of rains, there was a significant drop in the acreage by 10.29 per cent. The most suffered crop in terms of growth was Moong followed by Urad and Tur (Pigeon pea) whose area declined by 9.78 per cent, 8.78 per cent and 4.26 per cent respectively. As per our estimate, Tur production for the year 2015-16 is expected to decline by 26.56 per cent to 2.20 million MT over 2014-15 whereas the production of Urad and Moong is likely to decline marginally by 44.12 per cent and 45.98 per cent to 0.88 million MT and 0.58 million MT respectively. Overall, the total Kharif pulses production is likely to decline marginally by 22.90 per cent over last year.

We stand by our earlier estimate of drop in the overall oil seed production with further reduction in crop size. Maximum decline of 27.76 per cent is expected in case of soybean and 9.07 per cent in case of groundnut.

In the current cropping season, we continue with our negative outlook in terms of area and production. In sugarcane, the production is likely to decline marginally by 5.53 per cent and in cotton the production is likely to decline by 21.78 per cent over last year.

Copper Continues to Struggle amidst Sustained Weakness in Global Economies

The copper market continues to feel the heat for the sustained weakness in global economies. The scenario of declining demand from the major consuming countries, increasing strength of dollar and below par performance of major global economies of China, US and European Union continue to ascertain the fact that this lull phase of the copper industry is likely to continue for a much longer period than being expected by major participants. To analyse the above situation in depth we need to assess the current demand and supply situation, latest development in major economies and situation the currency market.

Like other beaten down commodities, copper has fallen victim to its own success. Surging prices on the back of voracious demand from China’s then double digit growth spurred mining companies to zealously crank up production. The elevated production, combined with a Chinese economy in its fifth year of decelerating growth, has created a supply glut that is unlikely to clear anytime soon. Copper supply is forecast to run ahead of demand until at least 2019. While producers such as miner-cum-trader Glencore have announced plans to scale back production and an 8.3 magnitude earthquake in Chile has disrupted supply at some mines, the cuts will do little to soften the blow from softer demand from China. Manufacturing continued to weaken in September, with the Caixin Purchasing Manufacturers’ Index recording a preliminary reading of 47, falling from a final reading of 47.3 in August. The China’s annual copper demand growth is likely to slow to roughly 3 per cent till 2017 against the 9 per cent pace it averaged over the past five years. The sharp slowdown in industrial activity in China is disastrous for copper producers, since China consumes 45 per cent of their output. Its attempt to shift from an investment-led economy to a consumer one has raised fears of a structural decline in the amount of copper it will need. However much electrical wiring there is in consumer goods, it does not match the vast tonnages consumed during the recent decades of rapid urbanisation in the form of power lines, telecommunications cables and the wiring of big apartment complexes. Power grid investment, which accounts for around 30 per cent of Chinese copper consumption, is expected to fall sharply in coming years as the expansion of the electricity network is poised to slow significantly. China’s production of consumer goods that contain large amounts of copper, such as refrigerators and air conditioning units has also been disappointing this year and to add to it the demand from most developed countries is expected to remain subdued. Amidst the above developments the MINERS should prepare in advance for weak demand from many traditional mainstays of copper consumption.

The latest supply situation suggests the surplus situation for the industry. World mine production is estimated to have increased by 3 per cent (280,000 MT) in the first half of 2015 compared with production in the same period of 2014. The increase in world mine production was mainly due to a recovery in production levels at mines in Indonesia and Chile, although the latter also benefited from production at mines that started last year. Aggregated production in these two countries increased by 6 per cent. Production in Peru increased by 8 per cent and in the United States and China, production declined by 4 per cent and 3 per cent, respectively. World refined production is estimated to have increased by 3 per cent (350,000 MT) in the first half of 2015 compared with refined production in the same period of 2014. The primary production was up by 2 per cent and secondary production (from scrap) was up by 8 per cent. The main contributor to growth was China (up by 5 per cent), followed by the Philippines and Indonesia where production was reduced in the first quarter of last year due to operational constraints. Production also increased in the DRC (+11 per cent). Output in Chile and Japan (the second and third leading refined copper producers) declined by 2.5 per cent each, while in the United States (the fourth largest producer of refined copper), production dropped by 6 per cent. The average world refinery capacity utilization rate for the first half of 2015 increased slightly to 82 per cent from 81 per cent in the same period of 2014.

By the first half of 2015, world apparent usage is estimated to have declined by around 2 per cent (245,000 MT) compared with that in the same period of 2014. Chinese apparent demand declined by around 1 per cent based on a 10 per cent decrease in net imports of refined copper from the high net import level in early 2014 and consequently higher apparent usage. Excluding China, world usage declined by around 3 per cent in the first half of 2015 mainly due to a decline of 53 per cent in Russia’s apparent usage and a decline of 8 per cent and 5 per cent in Japan and the EU, respectively.

In spite of increased supply of bearish news, the positive development in the consuming countries is likely to sustain the prices for the short run (3 to 6 months henceforth). Japan's factory output unexpectedly fell for the second straight month in August, fuelling worries that a prolonged slump could quash an unsteady economic recovery and raising expectations of fresh stimulus from the Bank of Japan to reignite growth. U.S. consumer confidence rose and was higher than expected in September. China has also decided to halve sales tax on small cars from 1st October 2015, boosting local auto shares, as the government tries to revive growth in the world's largest car market. This move from China is expected to trigger car production recovery, which in turn will support demand for copper and steel. This is just one more example of supportive Chinese fiscal policy, which could see commodities’ demand cyclically improve over the coming three to six months. As per estimates, transportation accounts for 10 percent of China copper demand. A 2-percent increase in auto sales would push up copper demand by 37,000 tonnes this year, 100,0000 tonnes next year and 166,000 tonnes in 2017. Chile's second-biggest copper mine Collahuasi, owned by London-listed Anglo American and Glencore, said this week it planned to cut output by 30,000 tonnes. That is not a large amount in a market estimated at around 23 million tonnes this year, but it adds to recent announcements about output cuts and reinforces expectations of miners taking out more capacity which would in-turn reduce the supply of copper from the main stream leading to further support to the prices.

The overall short term investment sentiments in the red metals continues to be gloomy, but if one think of investing with the time line of over 3-4 years, this is certainly a time to enter with at least a investment exposure of about 20 per cent of the whole portfolio.

Weak Global Economies & Slackening Demand Pulling Down Copper Industry

Presently, the Asian economies are the driving force for the world’s economy. China is the largest emerging market as well as the world’s second-largest economy. Its economy is manufacturing-intensive and also largely export-driven. A decline in its PMI indicates a reduction in production levels, which hampers both imports and exports. A fall in China’s production levels results in lower imports of raw materials from countries like Australia and Brazil. Lower demand for inputs, especially commodities, calls for a fall in commodity prices, which again affects the businesses of commodity firms exporting to China. There’s also the likelihood of a fall in the imports of machinery and automobiles from Germany to the country. China has also lowered the import of metals. China is the largest consumer of metals, so this move resulted in a fall in stock prices for the above sectors across all equity markets. The turmoil in the Chinese economy is also evident from the developments in the European economy. Since, China has trade relations with many European countries, and the decline in China’s manufacturing activity affects the country’s imports and exports. Although the United Kingdom’s exposure to Chinese trade is just 3.5 per cent, China’s impact on the United Kingdom is inevitable. China’s economic slowdown has deeply affected its trade with Germany and France (machinery and automobiles). Consequently, UK trade in related industries, such as automotive parts, with these European countries has also been affected. This has created turbulence in the UK stock market.

Although China, a major engine of global growth, has been slowing for some time, financial markets have nevertheless tumbled over fears its economic growth will decelerate faster than expected. With concerns mounting about the country’s economic slowdown, the yuan has faced downward pressure as investors sell the currency in markets outside China. For more than a decade, the U.S. and other countries castigated China for its currency policy, saying the yuan’s level gave the country’s exporters an unfair advantage at the expense of its trading partners, but the current Yuan devaluation of nearly 4 per cent (on 11^th August 2015) initially spurred worries in global financial markets as investors saw it as a signal that Beijing was reverting to its old policy playbook in a desperate effort to revive a flagging economy.  The Chinese economic turmoil fuelled worries in the U.S. that China’s political elite may pull back on the promises it made to make the tightly managed economy more market-oriented and open to international investment. Inflaming those concerns, the Chinese State Council launched an effort to boost exports just days after the currency move, including through a more flexible Yuan. China’s decision of devaluation last month to devalue its currency riled neighbours and fuelled investors’ fears about a sharp slowdown in the world’s No. 2 economy.

The copper market has been gripped by fears of further weakening of global economies during the last few months. The sustained weakness in the Chinese economy, with a slowdown in its GDP growth and fears of further devaluation of Yuan has triggered increased weakness in this red metal market. Apart from the turmoil of the Chinese currency, the shrinking global demand and rising supplies have maintained sustained pressure on copper prices. 

The copper market has recorded a surplus of 151 KT (Kilo Tonnes) in January to June 2015 on the back of a 295 KT surplus for the year 2014. Outstanding reported-stocks declined during May and June, but have remained 93 KT higher than at the end of December 2014.

China's copper smelters are considering deeper output cuts due to low metal prices and as the supply of raw material scrap and concentrates from domestic mines falls. Lower copper production implies a fall in exports, which again adds to China’s troublesome condition, where recovery seems to be far-fetched, given the existing conditions.

Month on month China's refined copper production dropped 4.5 percent in July 2015, down from June 2015. World mine production during the period January 2015 to June 2015 was 9.45 million MT which was 3.8 per cent higher than in the same period in 2014. Global refined production rose to 11.25 million tonnes up 2.4 per cent over the previous year with a significant increase recorded in China (up 161 KT) and India (up 48 KT).

Global consumption for the period January -June 2015 was 11,099 KT compared to 11,231 KT for the same period in 2014. Chinese consumption in the period January - June 2015 fell by 63 KT to 5337 KT which represented 48.1 per cent of global demand. European Union - 28 productions rose by 0.5 per cent and demand was, at 1783 KT, 6.8 per cent above the aggregate during the period January-June 2014. Excluding North America and outside of China, the story for copper demand has been one of weakness in the emerging markets and outright contraction in demand from the second- and fourth-largest markets of Europe and Japan.

With roughly 40 per cent of the world’s copper consumed by China, recent data showing slower exports and manufacturing activity weighed on prices as investors shed the industrial metal. The impact was immediately felt in the major copper producing countries. Latin American currencies bore the brunt of a rapid plunge in commodity prices coupled with the ongoing slowdown in the Chinese economy. Speculations were rampant that a weakening yuan could intensify the competition among major commodity exporters throughout the continent. Over the last few years, Latin America and China have forged economic ties, whereby Latin American countries provide raw materials to China, while China processes the raw materials and exports them back to Latin America. With China undergoing a strategic shift towards domestic consumption to drive growth rather than exporting manufactured products, the balance of forces might undergo a rearrangement. This shift could hurt economies that are dependent on China for their internal growth. But, the shrinking copper demand has led to a state of crises in copper producing mines. Codelco, the Chilean copper mining giant, announced half year results on last week that showed profits dropping by a third to $875 million despite an increase in production of 5.5 per cent compared to last year and has also resorted to cut costs by around $1 billion this year and is 60 per cent on its way to achieve that target.

The short term outlook for copper prices remains dim, with supply from the world’s mines expected to exceed global demand all throughout the year 2015 and continue for 2016. The latest statistics show that average housing prices have been rising for the last 3 months. However, major property gluts typically take several years to work through and are often characterised by a long basing or trough period. This could easily be the phase that China is now entering. While overall average prices have stopped falling, the gains are patchy and confined to major capital cities. In the longer term, China’s rebalancing towards domestic consumption and services and away from infrastructure development and heavy manufacturing would also be a relative negative for copper demand.    Thus, the future demand growth won’t be as great as it was a few years ago, even after the current cyclical downturn eventually ends and the outlook for copper prices remains bearish, with an economic slowdown in China, in particular, which is expected to dent the infrastructure-driven demand.

NBHC Kharif Crop Estimates for 2015-16 (First)

With the Kharif sowing season almost on the verge of completion we at NBHC are releasing our 1^st Kharif Crop Estimate - 2015-16. As per our analysis and industry’s feedback on the sowing progress and the status of the current crop, the total Kharif Cereals production is likely to decline by 8.98 per cent. For the current season the monsoon had arrived and spread all over India almost a month ahead of the scheduled time, but with the backdrop of El Nino (one of the strongest since 1997) and unusual warming of the Indian Ocean Dipole is beginning to take its toll on the Indian Kharif crops. So far the report of the first sowing of Kharif crops has been encouraging with 93.94 million hectares against 92.94 million hectares reported in 2014-14 till 21^st August 2015. The real concern in the monsoon development and crop progress lies in the coming days with forecasts of meteorological drought for the rest of monsoon months in regions of Maharashtra, Karnataka, Uttar Pradesh, Bihar, Andhra Pradesh and Telangana. The crops sown in early June in these areas are already experiencing moisture stress. Based on the above conditions we fell that the total Kharif crop production scenario for the year 2015-16 would turn out to be as explained in the table given below.   

Rice is expected to show a marginal decline in area by 5.58 per cent and a dip of 6.29 per cent in production over last year owing to increased insect infestation and excessive heavy rains in major paddy growing areas. In Maize, which is the other major cereal crop, the area is expected to decline by 10.86 per cent and the production is expected to decline by 25.88 per cent to 6.54 million hectare and 13.02 million MT respectively as major stretch of maize producing areas in Maharashtra, Karnataka, Andhra Pradesh and Telangana are facing near drought situation. Amidst forecast of lesser rains and dry weather for the coming month (September) the other cereals crops have also been affected. Maximum improvement is expected in Jowar whose production is expected to expand by 14.83 per cent as the dry weather is likely to improve the yield for this hardy crop. Lack of remunerative income has led Bajra farmers to shift their cropping pattern to other cash crops. Thus, for the year 2015-16 Bajra area and production is expected to decline by 20.28 per cent and 18.61 per cent respectively.    

In the pulses sector, the moisture stress situation in the pulses growing states of Madhya Pradesh, Karnataka, Andhra Pradesh and Telangana is likely to take its toll. We expect the area under Tur, Moong and Urad to decline by 10.56 per cent, 5.37 per cent and 2.29 per cent and likewise the production to decline by 12.10 per cent, 7.59 per cent and 9.48 per cent respectively. Overall, the total Kharif pulses production is likely to decline by 9.96 per cent over last year. 

The oil seed sector is likely to see a decline of production by 8.33 per cent. Maximum decline of 27.05 per cent in production is expected in case of groundnut. 

In this current monsoon season, the cash crop section is likely to show a negative growth in terms of production. In sugarcane, the production is likely to decline marginally by 14.87 per cent and in cotton the production is likely to decline by 9.34 per cent.

Copper Reeling under Sustained Slowdown in Chinese Economy

Weaker demand from China has caused copper prices to fall to levels not seen since 2009, and mining groups are feeling the pain as signs of recovery have almost disappeared from any near vicinity. There is currently a strong feeling that the story of 2009 (year of great financial crises), might be repeated in case of mining industry as in most of the commodities, the prices are falling and assumptions for demand, investment, jobs and shareholders’ dividends are being ripped up on sustained basis.

Emerging markets are usually fuelled by manufacturing growth, with high demand for energy and materials giving them a strong correlation with commodity prices. This relationship can be seen more clearly if we track commodity performance alongside the economic slowdown we’ve seen in China over the past several years. After more than a decade of outstanding double digit GDP growth figures, China has finally begun the long wind-down from those unsustainable highs to settle into a more stable and conservative growth rate. The collapse of the 2002-2012 commodities “super cycle” appears to be highly correlated with slowing Chinese demand. During the period, China experienced annual GDP growth that averaged 10.6 per cent and became a major importer of commodities which helped drive prices higher. But, ever since the slow down commenced the fall in the copper prices have gained pace and dropped over 50 per cent.

Copper is one of the most economically sensitive commodities. Copper has declined quickly, sinking under six-year lows and reflecting the panic recently seen in the Chinese stock market. If we look at Peru, a country where copper accounts for 20 per cent of its total exports, we can see the rise and fall of copper. During the super cycle, copper was in high demand by China and other emerging economies and Peru experienced growth in excess of 7 per cent. However, since 2013, Peru’s annual GDP growth has fallen from 7 per cent to just 1 per cent currently. Thus, it’s a sobering reality that China’s economic boom was the primary supporter of copper prices. Thanks to years of high demand, copper producers ramped up output, which has now created a supply glut, just as China’s copper demand wanes.

Looking after the developments in the Chinese economy, one can say that the problem of plentiful supply of copper is not going to be a temporary phase for the global industry. First, Beijing knows that huge infrastructure spending, as a proportion of GDP, is unsustainable. The authorities are trying to encourage consumption by consumers instead. Second, China, overburdened with debt, can’t afford a repeat anyway. The other difference from 2009 is more encouraging for the producers. Balance sheets are stronger and most mining companies, instead of placing blind faith in “stronger for longer” commodities Super Cycle, have been talking the language of production efficiency and investment discipline.

The recent development in the Chinese economy continues to rattle the copper investor giving its price a steep falling experience. Copper's latest drop follows a reading of Chinese manufacturing activity that shocked the market. The copper price is down 17 per cent so far this year. The Caixin manufacturing purchasing managers' index (PMI) for July fell by more than expected to a two year low of 47.8. A reading below 50 indicates a contraction and the Caixin index has shown shrinking output, orders and prices for five straight months. China, the world's second largest economy, is responsible for 45 per cent of total global copper demand of some 22 million MT and the country's PMI data is particularly closely correlated to the copper price as the graph shows. The weak readings partly reflect temporary disruptions to factory activity as a result of a number of tropical storms that hit China’s key manufacturing hubs over the past month. In addition, recent stock market volatility probably hurt business sentiment and led firms to provide more downbeat responses to the latest PMI surveys.

Apart from the Chinese economic slowdown news, global demand supply situation, economic development in US, Europe and other economic issues have also affected the copper prices.

The global supply side of the copper market continues to be firm and the market continues to be surplus on the supply front. World mine production is estimated to have increased by around 3 per cent (175,000 MT) in the first four months of 2015 compared with production in the same period of 2014. Concentrate production increased by 3 per cent while solvent extraction-electrowinning (SX-EW) increased by 3.5 per cent. The increase in world mine production was mainly due to a recovery in production levels at mines in Indonesia and Chile, although the latter also benefited from production at mines that started last year. Production in Peru increased by 4 per cent and in the United States production declined by 6 per cent. World refined production is estimated to have increased by around 3 per cent (210,000 MT) in the first four months of 2015 compared with refined production in the same period of 2014: primary production was up by 2 per cent and secondary production (from scrap) was up by 8.5 per cent. The main contributor to growth was China (up by 6 per cent), followed by the Philippines and Indonesia where production was reduced in the first quarter of last year due to operational constraints. Production also increased in the DRC (+14 per cent). Output in Chile, Japan and the United States (the second, third and fourth leading refined copper producers) each declined by around 4 per cent.

On the demand side, in the first four months of 2015, world apparent usage is estimated to have declined by around 4 per cent (290,000 MT) compared with that in the same period of 2014. Chinese apparent demand declined by 5 per cent (165,000 MT) based on a 14 per cent decrease in net imports of refined copper from the high net import level in early 2014 and consequently higher apparent usage. Excluding China, world usage has declined by around 3 per cent in the first four months of 2015 mainly due to a decline of 43 per cent in Russia’s apparent usage (following the withdrawal of Russia’s cathode export tax in September 2014) and a decline of 6 per cent and 7 per cent in Japan and the EU, respectively.

Copper has shed about a fifth of its value over the past three months. The metal is currently trading lower than supply/demand fundamentals would warrant in spite of the few supporting news as reports of many mine disruptions, strike at a Codelco mine in Chile, power shortages shutting down Zambia’s largest copper mine, and partial resolving of the Greece crisis. Such positive news for the market has been greatly negated by the firmer dollar that has restricted the recovery in the metal prices.

The strong U.S. dollar / weak producer currency environment continues to weigh on the industrial metal complex, but we are starting to see some signs of a producer response, but most markets have not yet reached a critical mass of closures. Thus we feel that till the Chinese government desires to implement financial and structural reforms to boost long-term growth the metal market would continue to trade in the Red Zone with further unexpected falls.

Copper’s Prolonged Weakness Testing Patience of Investors

The pressure of huge stocks and declining consumption demand has led to a steady decline in the global as well as domestic copper prices. The slowdown of the key global economies has led to a significant shrinking of copper demand. The major factors pulling the copper prices off-track are the slow Chinese demand, uncertainty in the European market, weak US demand simultaneously compounded by an increased supply of recycled copper. 

The global trade in copper has shown a significant weakness. One of the major reasons for this has been subdued demand from China’s State Grid Corp, the world’s largest utility, which had previously planned to spend more than Renminbi (rmb) 40 billion on electrical grid constructions in 2015. With the current state of growth, the Chinese demand is likely to slow down to 4 per cent in 2015 against 5.5 per cent reported last year. As per data from the Shanghai Futures Exchange, which monitors the stock-levels of copper in China, the amount of copper stored in the country jumped from 4 per cent of global stock in 2009 to 38 per cent last year.

The interest rates in China being higher than international levels – provided a popular trade practice i.e. of borrowing money at the dollar interest rate using a letter of credit from a domestic bank to import commodities. However, with an eye on providing support to the equity markets , last month China cut interest rates again - the fourth time in eight months, with the benchmark one-year lending rate now at a record low of 4.85 per, thus intending to halt the collapse of domestic equities. China’s recent moves to cut interest rates would also “significantly reduce” its demand for copper, thus affecting global producers. Owing to increasing importance attributed to the Shanghai copper holdings as a proportion of the global copper market, the unwinding or change in interest rate differentials would have significant impact on global commodity market pricing and trading. There is strong evidence to conclude that copper stocks have been piled up at warehouses mainly “to facilitate a carry trade under capital controls.” The “carry trade” involves speculators borrowing in US dollars to buy Chinese assets, and they often do so with leverage and through convoluted means, some using the same stockpiles of copper or iron ore as collateral. As per an unofficial estimate, as much as 70 per cent of China’s imports of refined copper were used to obtain financing rather than for consumption. This circle of imports - financing – imports has distorted the picture of copper consumption in China, the world’s largest consumer, and led to a fictitious demand inflation scenario amidst increased cases of multiple funding on same stock. If such incidents do come to light, China’s imports of copper could fall and that would enable the global market to get a better picture of true demand for the metal in the country.

The recent development in Greece has further strained the already weak sentiment in the industrial metal market and it fell sharply as Greece’s vote against austerity. At a referendum ending at noon Eastern Time on 5th July, Greece rejected an austerity package that European leaders insisted that the country implement in exchange for continued financial assistance. With 90 percent of the vote tallied, 61 percent of voters rejected the European program. The current situation as also likely new developments are likely to plummet demand, inflation would soar into the double digits, imports such as food and oil might need to be rationed, companies that borrowed in euros might go bankrupt, and the government would have to balance its budget overnight. Should Greece exit the euro -- temporarily or more permanently -- there’s nothing to prevent the IMF (and Brussels) to come up with assistance programs much as it has done in the past for Argentina. It’s just a matter of time, till Greece decides its next move, till then the global economic and the copper market (as perhaps other metal markets too) would continue to feel the cold of economic uncertainty.

Notwithstanding the above, despite the negativity being present in the copper market, many events are unfolding which are supporting the long term stable to bullish trend in copper prices. Copper is widely regarded by investors as an unrivalled barometer of the state of the global economy because of its use across manufacturing and heavy industry. Copper’s fortunes depend not only on demand from China, even though that nation is the world’s largest consumer, accounting for 42 per cent of global trade. The red metal is also crucial input product for build-out of the electricity grid, as well as wiring used in cars and consumer goods. Producers also hope that copper will have a future in electric cars, wind turbines and high-efficiency power transformers. Another plus for copper could come from shrinking supplies of high quality concentrate in the first half of this year, due to increased mine outages and flooding in Chile. Based on these facts, one can expect that any further supply side problems will only support copper prices, even if Chinese demand weakens further.

In 2014, for the first time in four decades, the global economy grew along with energy demand without an increase in global carbon emissions. According to energy policy group REN21’s just-released Renewables 2015 Global Status Report, which attributes this stabilization to increased penetration of renewable energy and to improvements in energy efficiency. What this means is that as the world’s population continues to grow, and as more people in developing and emerging countries gain access to electricity, the role alternative energy sources such as wind, solar and geothermal play should skyrocket. Between now and 2040, a massive $8 trillion will be spent globally on renewables, about two thirds of all energy spending, New Energy Finance. Solar power alone is expected to draw $3.7 trillion. This is very positive news indeed for the metal which is necessary for the conduction of electricity in all energy technologies, whether they be traditional or alternative. The use of some carbon-emitting fossil fuels—coal, for instance—will likely drop off over the years, but copper will remain an irreplaceable component in our ever-expanding energy needs.

Currently, global copper consumption is poised to increase not just because electricity demand is growing, but also because the new energy technologies typically require more of the red metal than traditional sources. Each megawatt of wind power capacity, for instance, uses an average of 3.6 MT of copper. Electric trolleys, buses and subway cars use about 2,300 pounds of copper apiece. Where we’ll see the most significant growth, though, is in the production of hybrid and electric cars, which use two to three times more copper than internal combustion engines.

At present about 60 per cent of the copper China purchases goes toward the property sector, an area that’s finally starting to show signs of life after almost a year of falling prices. A bright spot for copper demand, however, is the Eurozone, whose own flash PMI (Purchasing Manager’s Index) hit a 49-month high of 54.1. The expansion was led by Germany and France, which saw output rising at its sharpest rate since August 2011. The Eurozone PMI is typically based on approximately 85 per cent – 90 per cent of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data. In the coming years, more and more people all over the globe will gain access to electricity, a growing percentage of which we will derive from renewable sources. More electricity would certainly lead to increased demand for copper and other base metals.

Surplus Supplies & Shrinking Demand Taking Its Toll

Copper prices, seen as a barometer of industrial demand around the world, has plunged to its new lows in recent times as fears grew large over the health of the global economy. Copper has been the under performer in the base metals complex since the beginning of 2014 and affected by the supply balances from deficits to surpluses. Investors were panicked into selling after the World Bank raised fresh concerns about the health of the global economy, cutting its growth forecasts for this year and next and warning that the Eurozone Economy could be facing permanent stagnation. Copper is now in the midst of its longest run of losses for the year, and is dragging other commodities as aluminum, lead, zinc, nickel and iron ore on the lower side.

The question of surplus – whether there will be one – in the copper market is very much up in the air this year. Both Reuters’ GFMS and the International Copper Study Group (ICSG) see a surplus around 400,000 tonnes in the making for 2015, but key factor driving this alternate view of a tighter copper market – one close to balance – is that operational disruptions have already affected supply substantially in 2015. Above all estimates, Glencore went far enough to predict a 1.6 million MT, deficit in 2015.

On the production side, as per ICSG, World mine production estimated to have increased by around 2 per cent (65,000 MT) in the first two months of 2015 compared with production in the same period of 2014. Concentrate production increased by 2 per cent while solvent extraction-electrowinning (SX-EW) increased by 4 per cent. The increase in world mine production was mainly due to recovery in production in Indonesia and Chile, although the latter also benefited from production at mines that started last year. Production in Peru and the United States declined by 6 per cent and 3 per cent respectively.

World refined production estimated to have increased by around 5 per cent (170,000 MT) in the first two months of 2015 compared with refined production in the same period of 2014: primary production was up by 3 per cent and secondary production (from scrap) was up by 13 per cent. The main contributor to growth was China (9 per cent), followed by the Philippines, Indonesia and the DRC where aggregated production has increased by 48 per cent (67,000 MT). Output in Chile, the second leading refined copper producer, declined by 2 per cent, and in the United States production declined by 7 per cent.

In the first two months of 2015, world apparent usage estimated to have declined by around 3.5 per cent (130,000 MT) compared with that in the same period of 2014. Chinese apparent demand declined by 5 per cent (90,000 MT) based on a 26 per cent decrease in net imports of refined copper from the high net import level in early 2014 and consequently higher apparent usage. Excluding China, world usage declined by around 2 per cent mainly due to a decline of 42 per cent in Russia’s apparent usage (following the withdrawal of Russia’s cathode export tax in September 2014) and a decline of 7 per cent in EU usage.

China’s bonded stocks remained unchanged in the first two months of 2015 from the yearend 2014 level. Stocks increased by around 120,000 MT in the same period of 2014. In the first two months of 2015, the world refined copper balance adjusted for the change in Chinese bonded stocks indicates a production surplus of around 153,000 MT compared with a deficit of around 28,000 MT in the same period of 2014.

Manufacturing activity showed few signs of picking up across Europe, Asia or the Americas last month as demand stayed stubbornly weak, highlighting the need for central banks to continue supporting economic growth. Copper prices could draw further support if mining conflicts in Peru, a top global minerals exporter, heat up ahead of presidential and congressional elections next year as political outsiders whip up anti-mining sentiment. But, given the absence of major supply disruptions in May, Barclays sees a surplus of 48,000 MT for 2015.

China continues to be crucial to the whole picture, accounting for about 45 per cent of global demand for copper as the metal’s wide range of uses for wiring, piping and in general industry make it essential to an economy where infrastructure is expanding. Although China is still growing fast compared with advanced nations such as Britain and US, growth is nevertheless slowing and fears of a hard landing remain. Growth last year expected to have been less than 7.5 per cent, missing Beijing’s target for the first time since 1998.

The current demand scenario for Chinese demand is showing signs of improvement, as there are strong orders for copper in China by cable makers and for power grid investment. China’s copper demand to grow by 4 per cent this year on considerable use in power grid investment, based on announced government spending plans. The seasonally strongest quarter for copper demand in China is passing its peak with factories eyeing a summer production slowdown, leading to expectations for lower metal consumption. One of the hurdles facing industrial companies in China is a dearth of credit, with banks, burnt by last year's commodity financing scandal, reconsidering their businesses. The continued weakness in Chinese data, combined with the strong dollar rally of the last six months, have together hurt copper. This has created buying opportunities for copper, which also has the best long-term fundamentals in the industrial metals space, given grade declines, delayed new mines, and advantage to the growing electrification of the emerging world.

The other supportive factor for the price is the speculation that the Federal Reserve is likely to wait longer to raise interest rates amid mixed economic data. The dollar also headed for the biggest drop in 10 weeks against a basket of 10 currencies, boosting the appeal of commodities as an investment. Also weighing on oil, copper and other commodity prices is a strong dollar. When the dollar is strong, the price of dollar-denominated commodities such as oil and copper tend to fall, because they are globally traded and are more expensive for holders of foreign currencies. In the wider markets, a persistent sell-off in bond markets left financial market confidence in short supply, with stocks lower globally; while oil prices slipped ahead of Friday's OPEC meeting, prolonging the weakness in the copper market. Overall, we can say that the current drop in the copper prices is mainly due to investor’s panic rather than a sudden deterioration in fundamentals and can change in a very short span.  

The Indian copper market is also experiencing the pressure of the global uncertainty as the major copper scrap commodities prices showed a negative trend on Scrap Register Price Index. India's major copper scrap commodities like copper mixed scrap, copper pat, copper super d. rod, copper utensil scrap and copper wire scrap are all pointing southward. In spite of the weak short-term fundamentals, the copper market is likely to maintain its long-term bullishness as the automobile, power and infrastructure sector in India, which is poised to grow exponentially and I feel that this is one of the strong factors to motivate the investors to invest in copper with long-term horizon.

Indian Monsoon Likely to Head for Major Disruptions amidst Strong El Niño

Introduction

The contribution of agriculture in GDP is on consistent decline; it has shrunk from over 25.80 per cent in 1996 to about 16.96 per cent in 2014 and is further expected to decline because of the lack of focus on agriculture. This share is on consistent decline owing to lack of focus on agriculture over the years and shrinking economic support. Indian agriculture still continues to real under the shadow of monsoon. The lack of irrigation facilities continues to pressure the Indian agriculture even after 62 years of independence, since only 48.3 per cent of sown agricultural land is irrigated. The land of the country is thus under tremendous pressure to feed over a billion population and provide employment to about 65 per cent of the total work force. It is therefore very necessary that the monsoon should commence on proper time and precipitation should be in adequate amount.

Indian agriculture is facing increased pressure on account of consistent population growth (Annual 1.53 per cent) and its extensive reliability on monsoon rains. For farmers, it is highly critical to know when the onset will occur as this affects the timing of the planting of crops. If rainfall is deficient then more than two-thirds of the seedlings can die. To prevent this, the prediction systems play a very important role. Rain is critical as two-thirds of the population depends on farm income and nearly 60 per cent of summer-sown areas do not have assured irrigation. Kharif crops account for nearly half of India’s food output, including rice, lentils, sugar, spices, mangoes and oilseeds.  The country is already reeling under a series of unseasonal rain and hailstorms that has damaged crops in 16 per cent of total area sown in the winter.

El Niño is a 'warm' ocean current originating along the coast of Peru that replaces the usual 'cold' Peru or Humboldt Current. This warm surface water reaching towards the coast of Peru with El Niño are pushed westwards by the trade winds thereby raising the temperature of the Southern Pacific Ocean. A reverse condition is known as La Niña. Southern Oscillation, a phenomenon first observed by Sir Gilbert Thomas Walker Director-General of Observatories in India, refers to the seesaw relationship of atmospheric pressures between Tahiti and Darwin, Australia.

El Nino has been in news for long time because IMD, RBI and Economists warning about its negative impact on Indian agriculture and Indian Economy.

Basic understanding on El Nino / La Nina

During normal year two things are “STRONG”

•             Cold Peru Current

•             Trade Winds

As a result, cold water is dragged from Peru towards Australia as shown in the following image. Owing to the above current & trade winds two cycles are created as given in the table below the image. In above image, the red (warm) water region around Australia is called Western Pacific Pool (WPP). In the years of La Nina the above two currents become more pronounced and it results in more rains and even floods in Australia and South East Asian Countries and also results over supply of fishes in Peru region.

During the El Nino the above currents (Cold Peru Current & Trade Winds) become weak. As result, cold water is not dragged from Peru to Australia. But reverse happens – warm water is dragged from Australia towards Peru. Consequently, warm water + low pressure condition develops in the Eastern Pacific (Peru) and Cold condition + high pressure in Western Pacific (Australia).

Since Pressure is inversely related with amount of rainfall, the results are following:

•Warming of Pacific Ocean near Western coast of Peru and Ecuador. It Occurs @every 3-4 years; [In theory, it should occur @every 12 years]

•Its impact usually lasts for 9-12-18-24 months.

•It weakens the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern across the world.

Effect of the development in the Pacific Ocean results in the weakening of the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern.

Impact of Southern Oscillation

El Nino-Southern Oscillation (ENSO) water circulation happens between Australia and Peru But the wind movement is part of larger atmospheric circulation hence affects the rainfall over India. El Niño years directly impact India’s agrarian economy as their effect tends to lower the production of summer crops such as rice, sugarcane and oilseeds. This in return causes inflation to surge and lowers the Gross Domestic Product (GDP). India is the second largest producer of rice and wheat in the world.

How does it affect India and World?

India

• Drought condition decreases the agriculture output, leads to food inflation.
• Declined supply of cotton, oilseeds and sugarcane negatively affects the textile, edible oil and food processing industries respectively.

World

• Drought situation over South East Asia and Australia hurts rice and wheat cultivation respectively.
• Warm condition over Peru coast: unsuitable for Plankton population, thus bad for fishing industry. Birds migrate in search of fishes, thus less guano dropping for Fertilizer industry in Peru and Ecuador.
• Flood situation in South America & US Midwest lead to decline in coffee-cocoa and corn-wheat production respectively.

El Nino Phenomenon in India

According to Historical data of 126 years (1880-2005), about 90 per cent of all evolving El Niño years have led to below normal rainfall and 65 per cent of evolving El Niño years has brought droughts. However, one thing is clear that El Niño years do affect the weather in India in terms of Monsoon rain. During this time, the rainfall is generally below normal, which has its bearing on crop production. Here is a list of droughts taken place in India in last two centuries. Some of these have been an outcome of the El Niño phenomenon.

Latest Developments

The effect of monsoon rains in the food grains output of the country can be clearly seen from the above table and figure. The monsoon in year 2014 was almost 88.00 per cent to the normal monsoon in 2014-15 and most of the crops exceeded their estimated targets of production and as a result we received a record food grain production of above 250 million MT. The monsoon was declared as failure in the year 2012 by the central government and the effect of deficient monsoon is clearly visible for the gap between the target and the expected production levels in major crops. Since similar situation in the monsoon is expected in the recent times, there are ample reasons for us to fear for the lower production. The pre-monsoon development of the current year is closely in lines with the situation in 2009 & 2012, where the western disturbance has been stronger than other years.

Major Statistics of Foodgrain Production and Stocks

In the above figure, an attempt has been made to find the link between the total foodgrains production, the percentage of irrigated land and the stocks in hand of the government to cope up with the adverse climatic/ production scenario. The data represented in the above graph is between 1976 and 2014. The Red Ovals in the plot marks the drought year (as declared by All India Summer Monsoon Rainfall, Department of Agriculture & Cooperation, Ministry of Agriculture, and Government of India). The Identified drought years are 1979, 1982, 1986, 1987, 2002, 2004, 2009, 2012 and 2014 (Partial). In almost all the drought years the production of foodgrains had come down. The percentage irrigated land in the country is almost constant (about 46.4 per cent) for the last 12 to 15 years. The foodgrains stocks in the hand of the government has also shown declining trend in the corresponding draught years.

The status of the foodgrain production in the drought years in comparison to the preceding normal year on monsoon is shown in the following table.

From the above table it can be inferred that the production of foodgrains has declined in the drought year. The growth of the irrigated area has been evenly paced with marginal dips in the drought years. The pressure has been noticed in case of the procurement of foodgrains by the government agencies which have declined in almost every drought. The major reason identified for the drought in the country between 1979- 2002 is been the El-Nino (the basic description of which has been given in the earlier text). Important geological facts regarding Indian drought has been mentioned in the following text box which we feel is of prime importance if we have to discuss the overall performance of the agriculture sector. 

The pattern and the progress of monsoon and its comparison to the total foodgrain production over the years in the country could be analyzed from the following figure.

Progress of Foodgrain Production & Developments in Monsoon Rain Distribution

Impact of Monsoon on Indian Economy

A good monsoon helps drive up rural spending on goods, such as gold and consumer durables, boosting manufacturing and economic activity. When rain dependent farm output is robust, rural spending goes up on major consumer durables. This creates demand for the manufactured goods, which in turn helps the general economy. On the reverse side, if the monsoon is inadequate, it puts pressure on the country’s economy as government has to borrow more in order to mitigate the effect of drought and to support the farmers’ income.

Major development in Climate Changes which has raised concerns over 2015-16 Monsoon

• The Australian Commonwealth Bureau of Meteorology's Southern Oscillation Index (SOI) dropped to -11.2 in March from 0.6 in February. A sustained SOI reading below -8 indicates El Nino conditions. The bureau has raised the possibility of El Nino conditions developing this year to at least 70 percent from 50 percent earlier (declared in March).
• Nomura (Japanese brokerage firm) has also stated that the El Nino risks for this year is rising in India and it could result in sub-par rains, hurting rural demand and food inflation in the country. As per Nomura, a third consecutive bad agricultural season could severely impact rural incomes in India, force the government to announce higher Minimum Support Prices and possibly push food inflation temporarily higher.
• We are already into an El Nino phase as reported by Damodar S Pai, lead monsoon forecaster at India Meteorological Department.
• The chances of El Nino occurring in 2015 have increased. Ocean temperatures in the tropical Pacific continue to be warmer than average, trade winds remain weaker than average, and all models surveyed suggest further ocean warming will occur.
• Ocean temperatures in the tropical Pacific continue to be warmer than average, trade winds remain weaker than average, and all models surveyed suggest further ocean warming likely to continue.
• The US National Oceanic and Atmospheric Administration have also predicted the likelihood of an El Nino event this year with at least a 70 per cent chance.
• The month of March was also ranked warmest by NCDC in a record dating back 136 years. The Japan Meteorological Agency concurs, whereas NASA, which does its own independent analysis, ranked March as third warmest.
• On April 9, the National Oceanic and Atmospheric Administration (NOAA) officially declared a strong El Niño advisory reflecting substantially above-average surface sea temperatures forming across the equatorial Pacific. This means that there is a 60 to 70 percent probability that America could experience a monster winter like the El Niño that hit in 1997-1998, causing torrential rains in the Southeast, ice storms in the Northeast, tornadoes in Florida, and mass flooding in California.
• NOAA emphasized that their El Niño forecast is supported by the increase in subsurface temperatures, enhanced convection over the Date Line, and the increased persistence of low-level westerly wind anomalies which has caused wide spread rains in India in the last couple of months.
• El Niño brings areas of low pressure and increased rainfall to the west coasts of North and South America (including California), according to Columbia University’s Earth Institute.
• Normally, the trade winds along the equator blow in the opposite direction. This helps bottle up warm surface waters in the western part of the tropical Pacific. But here, they’ve reversed, helping warm water to flow toward the east which confirms the presence of El Niño.

The food production trend over the years have been upside barring few down’s due to weather woes, which is positive for the country. The major slump in the production was seen in 2002-03 which was a severe drought year. The same trend was noticed for the year 2009-10. The point of concern is the distribution of rainfall. From the above figure it is evident that the number of districts with normal to excess rainfall is declining as the years are passing. If the same trend continues for another decade or so the threat of drought occurring in the country would increase immensely and hence only 46.4 per cent of the total cultivated area has good irrigation facilities, the Indian agriculture may be heading towards much stiffer challenges.