(Bloomberg) -- India’s annual monsoon forecast sends social media into overdrive and is splashed across newspapers. This year’s outlook has some analysts warning that weather watchers may be disappointed.
India is set for a normal June to September monsoon, with rainfall of 96 percent of the long-term average, the India Meteorological Department predicted on Tuesday. While the initial forecast bodes well for the season that accounts for more than 70 percent of annual rain and waters half of total farmland, there are concerns this year’s prediction could disappoint.
The outlook sits at the bottom of the department’s normal range, which it defines as 96 percent to 104 percent. Farmers, analysts and traders are assessing the likely impacts from an El Nino that’s expected to develop in coming months and risks bringing drier conditions. Drought may prompt Indian consumers to boost imports of commodities including wheat, cooking oils, pulses and sugar. More than 800 million people live in Indian villages and depend on farming.
“There are risks to monsoon from El Nino and as we progress, unpredictability will increase,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental. “If rains fail, imports of agricultural commodities will increase. But one comforting factor is the local currency is strong and that will keep current account deficit under control.”
Last year’s initial monsoon forecast was 106 percent and actual rainfall was 97 percent. In 2015, the prediction was for 93 percent and total rain was 86 percent. The department’s estimate has a margin of error of 5 percent and it will give its next forecast in June.
The weather office predicts that a weak El Nino may only develop in the latter part of the season, with a more than 50 percent chance of it forming from September. During 34 percent of El Nino years, monsoon rainfall was normal or above normal, it has said.
Forecasters in Australia put a 50 percent chance of El Nino developing this year, with most models indicating thresholds will be reached in the Southern Hemisphere winter. There’s a 51 percent chance it will emerge sometime from October through December, according to the U.S. Climate Prediction Center.
Skymet Weather Services Pvt., a New Delhi-based private forecaster, last month predicted monsoon rain would be 95 percent of the long-term average, meeting its definition of below-normal. The odds of an El Nino had increased and there’s a 25 percent chance of the total precipitation in 2017 falling below the normal range, it said.
“It is too early to take any comfort,” Sonal Varma, a Singapore-based economist at Nomura Holdings Inc. and her colleague Neha Saraf, said in a research note on Tuesday. “Despite the IMD’s normal rainfall prediction, we believe that risks are skewed toward below-normal rains in 2017.”
Monsoon rain is critical to India’s grain, pulses and sugarcane production. The country is the world’s top palm oil importer and biggest consumer of pulses and sugar. India can switch between sugar exporter and importer depending on the monsoon.
“India may need more sugar imports on low stockpile and uncertainty over monsoon,” said Michael McDougall, director at Societe Generale SA in New York. “Water level in reservoirs remains low in southern parts of the country and if rains fail, it would be a problem for sugarcane in Karnataka and Tamil Nadu.”
The government has approved duty-free imports of 500,000 tons of sugar in 2016-17 to help meet regional supply shortages and maintain domestic prices.
Spread and Timing
Crop output and yields depend on the timing and spread of rain. Precipitation in June and July is critical and any deficit in the early part of the season could delay sowing and hurt crops, even if the monsoon gathers pace later.
“Normal cumulative rainfall is a necessary but not sufficient condition for ensuring healthy agricultural production,” Kaushik Das, senior economist at Deutsche Bank AG, said in a note on Tuesday. “Too much rain at the end of the monsoon period, including unseasonal rainfall could lead to flooding, while too little rainfall at crop-critical areas could be equally damaging for agricultural production.”
A good monsoon can also support consumer spending on staples as well as motorcycles to refrigerators and television sets.
Indian weather forecasters are also watching the Indian Ocean Dipole, with weak positive conditions likely to develop during the middle of the monsoon. Positive condition are favorable for normal or above-normal rain. There were 15 El Nino years between 1951 and 2015, with a positive IOD in four. Monsoon rainfall was normal in three of those four years.