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Pandemic tears through India's agriculture commodity demand; exports show resilience

Highlights

Domestic demand stagnated as cases soar

Palm oil refiners lower output by 2%-3%

Suppliers battling logistical bottlenecks

Extended restrictions may weigh on shipments

New Delhi — India's agriculture industry is in a wait-and-watch mode amid the worsening pandemic situation, as localized lockdowns have stagnated market demand, while any subsequent stricter restrictions in the coming days are expected to slow down trading activity and disrupt supply operations.

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Even though agriculture and allied activities are exempted from government restrictions so far, several markets across India remain closed as cases continue to skyrocket.

As a result, India's domestic demand for palm oil, grains, as well as sugar is absent from the markets, sources told S&P Global Platts. India is the world's largest buyer of palm oil, and a major consumer of grains and sugar.

Meanwhile, agricultural exports for commodities like sugar are steady, which are supporting prices as of now, market participants said.

Palm oil demand may take a hit

India's appetite for palm oil may get impacted as nearly 60% of country's consumption comes from the HORECA (Hotels, Restaurants, Catering) sector, which may see some reduction in the coming days, industry participants said.

"Roughly, a countrywide lockdown for a month affects consumption of vegetable oils by 20%. Right now, refiners have pared down production by 2%-3%," Sandeep Bajoria, CEO of vegetable oil broking firm, Sunvin Group said.

"In cities and states where there is a surge in COVID-19 cases, HORECA buyers have already started reducing their orders and postponing existing orders because of uncertainty," Bajoria added.

Palm oil demand has already seen a marginal reduction due to the partial lockdowns, but vegetable oil prices in the country are high, which are likely to send more household buyers to palm oil's way, traders and industry players said.

As prices of oils used widely in households like sunflower, soybean, mustard and groundnut hover at historical highs, palm oil is the only discounted option available for price sensitive customers, Kushaal Bothra, an agriculture commodity trader working in Patanjali Ayurved said.

"Even if HORECA sector reduces its orders in the coming days, palm oil may stay untouched as rates of other oils are high so people may switch over to palm oil," Bothra said.

India imports about 8 million-9 million mt of palm oil annually.

Wheat prices, rice exports firm

In the benchmark grain markets of India, demand has been muted due to absent buyers or halted trading, market sources said.

The demand of wheat in Indore -- a major trading center in the Indian state of Madhya Pradesh -- has been hit as the market is shut due to the lockdown imposed by the state government, said N K Agarwal, a local trader.

With some markets shut and supply tightening, prices of the grain have driven up in other trading centers. In Rajasthan's key market, Jaipur, wheat prices increased to nearly Rupees 18,742/ mt ($250/mt) against around Rupees 17,769/mt at the beginning of April.

Apart from these, logistical bottlenecks are also weighing on the demand for the commodity.

"We are unable to find vehicles to transport the commodity to other states. It has not yet started to impact exports but it will impact outward shipments, if the restrictions continue for long," a Delhi-based exporter said.

So far, exports from the country remain largely unaffected. Rice exports from India -- the top rice exporter globally -- surged 43.5% in value terms on the year during April 2020-March 2021, latest data from the country's agriculture ministry showed.

As for corn, harvest for the winter season crop is still undergoing in the country without any disruptions caused by the pandemic, sources said.

Domestic sugar demand disappears

Lockdowns in various Indian states, including Maharashtra, have muted domestic demand for sugar. Maharashtra -- India's sugar trading hub -- went under a lockdown after COVID-19 cases surged in the state.

Domestic demand for sugar has been hit in the country due to the absence of bulk buyers -- cold drink and ice cream manufacturers -- that would normally pace up buying ahead of the country's summer season.

Wedding demand is also muted following government's restrictions on huge gatherings which typically make a large share of sugar demand in the country, said Mukesh Kuwadia, secretary general of Bombay Sugar Merchants Association.

However, export demand for sugar from the country has remained steady keeping prices stable, he added. "There is no selling pressure on the mills right now, because the export demand is steady, so mills are not lowering prices," said Kuwadia.

Exports of most commodities have been undisturbed and labor shortages have not emerged at the ports yet, a situation that can change if governments aim for stricter lockdowns, traders said.