Food inflation and Fertilizer Stocks

The food inflation is perhaps the single most

Ramagundam Fertilizer unit

factor which affects all.  

Agri products are different from many other commodities, in couple of ways: 

• They are consumed quickly and have shorter shelf life. 
• Their demand keeps growing at a steady pace with the growth in population. Thus, food prices are vulnerable to spikes whenever there is a constraint in supply. 

Often monsoons and hoarding are blamed for ushering in this problem. Now, while the middle-class crises foul when food inflation rises, on the flip side the farmers celebrate its northward move,  demanding good price of their produce.

If we look back a little,  we would see  that Food inflation fell to 0.53% in January 2017 as compared to 1.37% in December 2016; during demonetisation era when 86% of high-denomination currency was rendered invalid in a day. The demand-supply scenario turned against farmers as Indians didn’t have adequate cash to buy their fast perishable farm produce.

CRISIL Research, in a webinar recently said that the Kharif 2019 season will see 5% drop in production over last Kharif but that will be offset by higher prices. 

It is pertinent to mention here that, the trade war between US and China has created good demand for Indian cotton and soya bean and farmers of these crops are likely to see good prices after Kharif (April - September) harvest. Other crops where prices may move higher are likely to be – maize, bajra and jowar on short supplies in the market, jute on plastic ban and oil seeds on import duty on palm oil.

Thus, food inflation is positive for farmers as they tend to put more money in their pockets, during this time.

Now,  though there is little one to one relationship between the two, however it is generally believed that any increase in farmers' income, scales up their abilities to buy compost/manure, seeds, etc  which translates into a higher earning for the Agri based companies like National Fertilizers Ltd (Rs.26.90), Zuari Agro Chemicals Ltd (Rs.110.95),  Rashtriya Chemicals and Fertilisers Ltd (Rs.49.20),  etc. 

Besides,  most fertilizer stocks run up,  as the Indian Union Budget date nears, rewarding handsomely to knowledgeable investors. 

Moreover,  among the three scrips mentioned above the stock of National Fertilizers looks a little attractive because Ramagundam Fertilizer unit in Telangana, in which it has stake, is tentative to be commissioned by March 31, 2020.