With its varied topography along with climatic conditions, various types of feed grains and oilseeds are grown in India. These grains and oilseeds crop apart from being used for human consumption also used as animal feed ingredients.
During 2018-19, overall feed grain production was lower at 42.38 MMT down by 6% Year-Over-Year (YOY). The production was down as unfavourable monsoon rainfall and drought like conditions in many parts of the country negatively affected kharif crop and acreage under rabi crops. It resulted in higher prices of maize to trade at all-time high of INR 2425-2460 per qtl at Nizamabad and Gulabbagh markets.
Feed Grain Diversion
In 2018-19, production of feed grains like Maize, Bajra, and Sorghum declined whereas barley, broken rice and wheat witnessed increase in output. Meanwhile, lower production of maize and record high prices also resulted in higher diversion of other grains towards feed. Even though, Bajra and Sorghum (Jowar) output were lower YOY, rise in diversion towards feed production also pulled its prices to record high levels. Rabi grain crop Barley and Wheat witnessed higher output due to favourable climatic conditions. Though, lower quality (feed grade) variety of wheat is generally diverted towards feed input. Bajra, Feed Wheat, Barley are mostly grown in North and Central India which makes it an alternative feed grain in those regions particularly for cattle feed.
Meanwhile, maize in poultry feed diet could only be replaced by other grains up to 10-15% and it continued to be supportive for maize prices and demand amidst lower production during 2018-19.
For 2019-20, surplus monsoon and post-monsoon rainfall damaged the quality of kharif maize grains despite higher YOY acreage under the crop at 8.356 M.Ha up by 6% YOY. However, it proved to be a boon for Rabi Maize sowing and it has recorded a YOY increase in acreage of 10% at 1.75 M.Ha. Overall, feed grain production for 2019-20 is seen rising by 9.1% YOY at 46.23 MMT. However, this year diversion towards other feed grains from maize is highly unlikely amidst surplus production along with slump in prices due to demand destruction from poultry industry.
Impact of COVID-19 on Maize and its Demand Segmentation
The impact of rumours related to COVID-19 and poultry consumption has adversely impacted end user demand and subsequently the feed grain sector particularly maize. Normally, Oct-Jan is considered to be the peak consumption period and from Feb it gradually declines amidst rising temperature and moves into the lean demand period of April-June.
The spread of rumours regarding COVID-19 and consumption of chicken, drastically affected sales of poultry which fell by 50% along with broiler chicken and egg prices.
Overall, domestic maize consumption is estimated to be around 22.79 MMT and around 60% of it i.e. 13.79 MMT goes into animal feed sector. The poultry feed sector consumes around 44% or 10.09 MMT of maize
Impact of Prices on Maize Acreage
Change in average maize prices during peak arrival period or harvest period does have impact on kharif acreage of the crop which is visible in the next year. During 2015-16 marketing year (Oct-Sep), the Oct-Dec average prices at Nizamabad was around INR 1507 per qtl which was higher YOY. Its impact was seen during 2016-17 kharif maize planting season when acreage under the crop increased by 8%. Similarly, during 2018-19 marketing year, lower maize output along with 1.5 times increase in its MSP to INR 1700 per qtl and procurement by Telangana supported Oct-Dec average prices to INR 1480 per qtl at Nizamabad. It also has cascading effect on other key spot markets where prices eventually traded above INR 2000 per qtl in the next 4-5 months along with Nizamabad. This resulted in record increase in acreage under kharif maize sowing during 2019-20 marketing year.
Meanwhile, Oct-Dec average prices of kharif Nizamabad maize hovered around INR 2028 per qtl for 2019-20 marketing year, though, this marketing year harvests were delayed to heavy post monsoon rainfall. At present, Jan’2020-Mar’2020 Nizamabad average maize prices have declined by 8% compared to Oct-Dec quarter. With, slump in poultry sales due to COVID-19 rumours resulting in further weakness in prices would less likely to have a positive impact on the kharif maize acreage during the 2020-21 Marketing Year.
For Rabi maize planting, record high average prices during Apr-Jun period (2018-19) resulted in increase of acreage under the crop during 2019-20.
Last year i.e. 2018-19 lower rainfall during monsoon season and inadequate availability of water in reservoirs affected Rabi sowing and eventually output was also lower YOY. The average prices for the period April-Jun jumped up by 60% YOY during 2018-19. This surge in prices impacted rabi planting in the 2019-18 marketing year, despite a slower start to it. Overall, rabi maize acreage rose by almost 10% YOY during 2019-20.
Unlike feed grains which are basically used for its carbohydrate or energy in animal feed diet, oil meals are mostly used for crude protein content. Soymeal has the highest percentage of CP (crude protein) amongst the above mentioned oil meals making it a primary ingredient in poultry diet along with maize.
For 2019-20 Marketing Year, overall output of the major oil meals in the country (Cottonseed, DORB, Soymeal, Rape-Mustard, Groundnut, Copra) is lower by 2.5% YOY at 26.53 MMT. The decline in overall domestic oil meal can be attributed to fall in soymeal production which is seen lower at 5.42 MMT vs. 7.05 MMT. Excessive rainfall during Aug-Oct period in the major soybean producing region of Madhya Pradesh damaged the crops extensively bringing down the yields despite higher acreage at 11.4 Mha vs. 11.2 Mha during 2018-19.
DORB output is seen increasing to 6.35 MMT due to expectation of another bumper paddy production year. During 2018-19 paddy (kharif and rabi) paddy output is estimated to be record highest at 169 MMT. This year 2019-20, paddy production is set to rise further marginally by 1.2% to 170.99 MMT. Hence, DORB supplies are seen increasing by 4.17% YOY.
Last year (2018-19), DORB prices at Khanna market reached an all-time high of INR 1750 per qtl in Sep’19 despite higher production. DORB is majorly used in cattle feed, higher prices of maize led to an increase in partial replacement of it with the former supporting its demand as well as prices.
Impact of COVID-19 on Soymeal
Not only export of Indian soymeal has hampered but also the domestic demand of soymeal has also impacted Jan’20 onwards. The spread of COVID-19 in India has hampered the soymeal demand from the poultry industry.
The demand of soymeal is expected to remain subdued unless sales of poultry products improve in India. As per seasonality, prices of soymeal remain higher which gradually eases when its sowing starts during the kharif season. Overall, considering the current scenario in year 2020, demand of soymeal may remain subdued in coming months due to the impact of COVID-19 spread in India.
Future Outlook- Fundamentals
Soymeal prices have witnessed a down trend since the start of Jan ’20 due to increased price disparity of Indian meal in the global market. Monthly average price spread between Indian meal with Argentina soymeal surged up to 150 USD per MT in Jan’20 compare to the 75 USD per MT of prior year for the corresponding period. As a result of increased price of Indian meal, total export of India soymeal from India has dropped by 62% YOY till end of Feb’20 reported at 2.7 lakh tons compare to 7.26 lakh tons of prior year for corresponding period. Further, the recent crisis in poultry industry due to COVID-19 and sharp reduction in chicken related products sales are likely to affect demand for soymeal along with its prices negatively.
On the other hand, with commencement of mustard crop harvest in next few weeks and its subsequent crushing would result in rise of mustard meal supplies at the domestic market. This would weigh on its prices.
Cotton seed oil cake prices could improve in upcoming months due to slowing pace of arrivals of cotton. More than 65% of estimated production of cotton or 290 lakh bales of cotton have arrived in the market till end of Feb’20. Expected fall in crushing activities and rise in demand from the dairy industry in the upcoming month is likely to buoy cotton seed oil cake prices. Similarly, shrinking arrivals pace of groundnut in Gujarat is likely to support groundnut meal prices in coming months.
Meanwhile, DORB prices are less likely to fall further as demand from the cattle feed industry is expected to be firm amidst higher realization for farmers due to the increase in milk prices. Though, it would not witness last year record high levels of (INR 1750 per qtl-Khanna) in absence of any replacement demand.
The upcoming rabi feed grain harvests including maize, sorghum, wheat and barley is estimated to be significantly higher YOY. Surplus rains during monsoon and post-monsoon rainfall provided adequate soil moisture and water in reservoirs which has supported higher acreage under the rabi grains crop.
The impact of rumours related to COVID-19 and poultry consumption has adversely impacted end user demand and subsequently the feed grain sector particularly maize. The prices of existing kharif maize supplies at major spot markets have already fallen below INR 1600-1650 per qtl amidst the demand destruction due to COVID-19 scare.
Overall, upcoming surplus Rabi harvests of maize, sorghum, wheat and barley and demand destruction due to COVID-19 scare would continue to weigh on the prices of feed grains in upcoming months.
by Ravi Chandra, Transgraph