Monday, May 20, 2024

Weather adds to challenges for farm chemicals makers

Recent unseasonal rains and an El Nino warning from weather scientists are further compounding challenges and uncertainties for agrochemical manufacturers amid ongoing climate-related issues.

During the December quarter, local manufacturers faced the impact of high channel inventory, capping their earnings, and this trend is expected to persist in the current quarter. Recent unseasonal rainfall has likely damaged the winter wheat crop in certain areas, and warnings about El Nino, which causes droughts in India, are adding to uncertainties, leading to subdued sentiment and cautious investors in the first half of FY24.

“Although the weather department had issued an advisory to farmers on the unseasonal rains, preliminary reports suggest that crops have been destroyed across the country, especially the standing rabi crops,” said analysts at JM Financial Institutional Securities Ltd.

Any adverse impact on crops or yields and, thereby, farmer incomes will affect the farmers’ ability to use farm inputs and El Nino, if it happens, can impact kharif crop sowing too.

The National Oceanic and Atmospheric Administration (NOAA) said that El Nino could return to India, while the India Meteorological Department (IMD) emphasized that the actual impact is unlikely to be known until April. On the other hand, Skymet, a private weather forecaster, had stated that the El Nino threat to the Indian monsoon is becoming more serious. Analysts at Systematix Shares and Stocks (India) Ltd said that “El Nino conditions could have a significant impact on kharif sowing, which is expected to start from May-June 2023 onwards.

Analysts have been anticipating limited prospects for manufacturers in short to medium term due to high channel inventory, and the current weather uncertainties are adding to those risks. Himanshu Binani, an analyst at Prabhudas Lilladher, noted that he is not particularly optimistic about manufacturers’ short-term prospects.

“Caution prevails on the El Nino Impact and also weather conditions. However, it is the quantification of the impact of adverse weather conditions that will remain important,” Binani said. On the El Nino impact, the IMD forecasts will be watched carefully.

The distribution of rainfall and timing of the monsoon play a more important part, as has been seen in the past, analysts said. Monsoon has remained good in the past four years, but the distribution that had remained varied in the past two years, which was reflected in crop production in different regions, analysts said.

Aggressive destocking in the December quarter continued in the March quarter, and inventory is elevated in Latin America, North America and India resulting in potentially muted volume growth though underlying demand remains steady, according to a 27 March note by Jefferies India Pvt Ltd. Impact of El Niño on volumes remains uncertain at this stage but could influence volumes next year.

The banking crisis now unfolding in the US and Europe could further exacerbate pressure on end-demand for chemicals, said Abhijit Akela at Kotak Institutional Equities. Even the relatively defensive agrochemicals segment is under some pressure due to a channel inventory overhang, while the Indian fertilizer industry faces risk from the government’s steps to curb subsidies, he added.

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#Weather #adds #challenges #farm #chemicals #makers

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