UPDATE 2-Weak monsoon casts drought shadow over India

Thu Jul 19, 2012 9:17pm IST

* Signs of monsoon revival visible-Met office

* Rains could improve over rice-growing areas

* Domestic farm futures extend day's gains (Adds details, market reaction, background)

By Ratnajyoti Dutta

NEW DELHI, July 19 (Reuters) - India's monsoon rains lost momentum again last week, falling nearly a fifth short of averages and raising the risk of a drought year in one of the world's leading producers of grains and sugar just as global prices hit record highs.

Rainfall was 22 percent below average across the country in the week to July 18, even though the parched interior in the south received downpours up to 179 percent above average, data from the India Meteorological Department (IMD) on Thursday showed.

Key oilseeds and cane areas received scant rains in the retreat, which came after rains had scraped one percent above average in the week to July 11 -- the first weekly surplus in the current June to September season.

June and July rains bring about 50 percent of totals during the monsoon -- the main source of water for the 55 percent of arable land in India without irrigation. Asia's third-largest economy looks to farming for 15 percent of its wealth.

Sugar, soybean, soyoil and rapeseed futures extended gains on local exchanges after the data as traders fretted over supplies, with soybean and soyoil hitting record highs.

Global markets are already on high alert over the world's food supplies as there seems no end in sight to a drought in the United States that has damaged crops, pushing soybean prices there to record highs.

In India this week, Farm Minister Sharad Pawar and Food Minister K.V. Thomas started talking about a likely cut in output of rice, which accounts for 70 percent of the total summer crop, and lentils, with Pawar describing the monsoon as "playing hide-and-seek".

But both ministers also stressed there was no need for alarm over domestic supplies as India was sitting on massive stockpiles of rice and wheat after bumper harvests.

India will decide whether to curb exports of wheat, rice and sugar in mid-August, after the IMD's new forecast for August and September at the end of July. The status of the El Nino weather system that can curb rains further should also be clearer.

The IMD is sticking to its forecast of average rains for the season at 96 percent of long-term average. Rains less than 90 percent would be a drought -- last seen in 2009 when India had to import sugar, pushing global prices to 30-year highs.

The poor rains have slowed the speed of planting crops such as rice, cereals, pulses and oilseeds including soybean, but areas under sugar cane and cotton, mainly grown in irrigated regions, have been higher than the previous year.

"Soybean sowing is lagging, but we are also concerned about yields. It may get affected due to poor rainfall," said Chowda Reddy, a senior analyst at JRG Wealth Management.

"The delay in sowing will ultimately delay harvesting. Even in November soybean supplies will remain tight," he said.

Rainfall in top soybean growing Madhya Pradesh state was 36 to 75 percent lower than average last week, while the key cane-growing region of Maharashtra, the top sugar producer in the country, got 58 percent lower rainfall.

"Dry weather has affected the cane crop. Since yesterday we are getting rains. That will limit the damage, but the prolonged dry spell has already hit the crop," said an official at Ajinkyatara Co-operative Sugar Factory in Maharashtra.

The August soybean contract on India's National Commodity and Derivatives Exchange hit a record high of 4,774 rupees ($86.09) per 100 kg after the data on Thursday, while August soyoil hit an all-time high of 810 rupees per 10 kg.

WEATHERMEN HOPEFUL

Weathermen see signs of improvements in the monsoon soon, with showers gaining momentum over rice-growing eastern India.

"Odisha, Jharkhand, Bihar are going to receive good rains in the next 24 hours," said S.C. Bhan, a director at the Indian weather office.

"We expect the monsoon to remain active in the remaining period of July as no negative trigger is visible," Bhan said.

After the revival in the rice-growing areas, the monsoon is expected to become more active in soybean areas of central India in the next 2-3 days.

Weather officials also said the rains would improve in cane growing areas of northern Uttar Pradesh state early next week, after the revival in the central region.

Grain bowl states of northwest India - Punjab and Haryana - are expected to receive ample rains from the middle of next week. Rains at this point in time will help crops which are already planted, such as cotton, to grow and reduce the burden of using water from reservoirs. ($1 = 55.4550 Indian rupees) (Additional reporting by Rajendra Jadhav in MUMBAI; Editing by Jo Winterbottom and David Cowell)

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