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Farm profitability likely to be ‘stable’ this year

We interacted with various Farmer Producer Organizations (FPOs) and farmers across India to gauge the on-the-ground situation regarding crop conditions, yields, and farm profitability during the Kharif season in CY25.

* Post-interaction, our assessment indicates that farm profitability is likely to improve in Gujarat, Madhya Pradesh, Maharashtra, Uttar Pradesh, Tamil Nadu and Telangana led by better yield and higher sowing, while the states of Andhra Pradesh, Haryana, Karnataka, and Odisha would broadly remain stable. Some states, such as Bihar, Rajasthan, and West Bengal may experience a decline in profitability due to muted crop prices and lower yield

* Punjab contributes notably to India’s food security (~18% of wheat/~12% of rice output in FY25, with 7% of total rice acreage). However, Aug/Sept’25 floods are expected to dent production. The FPOs estimate a 20-25% dip in output. Overall, the floods are likely to hit both agricultural output and farm profitability in Punjab.

* Increase in sowing (up 2% YoY) was supported by healthy rainfall (up 8% from normal levels as of 8 th Sept’25), covering more area than the normal sown area (110.5m hectares vs 109.6m hectares i.e. 5 years average). Higher sowing in rice/maize/cereals is likely to drive incremental demand for agri-input products offered by Coromandel, Godrej Agrovet, UPL, and PI Industries.

* Healthy rainfall has led to higher reservoir levels of 94%/71%/89%/87%/89% in the northern/eastern/western/central/southern regions. Given healthy monsoon trends across regions, reservoir levels are expected to remain healthy. This is expected to fuel growth in Rabi crop production.

* According to the World Bank, India’s agricultural sector has reached a phase of heightened uncertainty amid falling commodity prices, resulting in a price decline of major crops such as paddy/tur/bajra/maize/soybean/groundnut. While only cotton has seen an increasing price trend, government support in the form of MSPs and a decrease in the cost of cultivation are expected to support profitability.

* The market had initial expectations of 4% growth in output over the previous year, however, total agriculture output is expected to grow only by 2% (i.e. 2% reduction vs earlier expectations by taking into account Punjab floods). Accordingly, we expect overall farm profitability to be ‘stable’ on a pan-India basis for the Kharif season 2025- 26.

Interactions with FPOs and farmers signal stronger Kharif output in CY25

* We engaged with multiple FPOs and farmers across key agri-heavy states (14 states) to assess the ground-level realities of crop conditions, yields, and farm profitability during the Kharif season in CY25.

* According to our assessment post interaction, five states, such as Gujarat, Madhya Pradesh, Maharashtra, Uttar Pradesh, Tamil Nadu and Telangana, are expected to report better farm profitability this year, while states such as Andhra Pradesh, Haryana, Karnataka, and Odisha are expected to remain stable YoY. Some states, such as Bihar, Rajasthan, and West Bengal may experience a decline in profitability due to muted prices and lower yield.

* The states of Maharashtra, Uttar Pradesh, and Karnataka have received healthy rainfall, which has led to a higher amount of sowing in these regions. Farmers expect the crop condition and yield to be better than the previous year, which may thereby result in higher output and profitability.

* States like Madhya Pradesh do not prefer excess rain due to their focus on soybeans. As rainfall has not been abundant, farmers expect better productivity in soybeans this season.

* In contrast, the states of Bihar and Rajasthan received a subdued amount of rainfall as per the FPOs. Agriculture in Bihar depends majorly on paddy (dhan), which requires a high amount of water; lower rainfall has thereby led to lower sowing there (which may lead to lower output and profitability). Rajasthan had good rainfall earlier this season; however, it has declined gradually over a period.

* Input cost, cost of fertilizers, and DAP across all the states have largely been inflationary, and the cost of labor varies as per their demand. So, there has not been a huge surge in the cost of cultivation.

* Overall, sowing in this Kharif season has been off to a healthy start across the country (clearly evident with sowing up 2% YoY).

Severe floods in Punjab to dent crop output and profitability

* According to Farmonaut, Punjab contributed ~18%/12% of the total wheat/rice output during the period 2024-25. Further, rice acreage in Punjab accounts for 7% of the country’s total rice area. Due to the massive floods in Aug’25, agriculture production in Punjab is expected to have a detrimental impact.

* We engaged with FPOs to gauge the impact of floods, and they estimate a ~20- 25% decline in output. Further, if this rainfall continues, they expect a decline of ~35-40% in output for the current season.

* This has led to a surge in prices of vegetables in Punjab (up ~50% in some regions) for the near term. Although prices may normalize gradually, they may be higher than the pre-flood levels. Likewise, a decline in the supply of rice/wheat may lead to an increase in prices across the country due to Punjab playing a pivotal role in the Indian agricultural landscape.

* Overall, the impact of the flood on Punjab is expected to hit the output and profitability

Stronger sowing and above-normal monsoon to drive higher agricultural output

* The total area sown in the CY25 (as of 5th Sept’25) Kharif season was higher (up 2% YoY) at 110.5m hectares (covering more than the normal sown area). This was led by growth in sowing in rice/coarse cereals/sugarcane by 5%/7%/3%.

* Growth in coarse cereals was led by a spurt in sowing in the case of maize/ragi (up 12%/10%), while jowar and bajra remained flat ? Although sowing in total pulses grew only 2% YoY, kulthi/urad/ other pulses grew 23%/9%/5% YoY, while moong remained flat.

* Growth in the sowing of the aforementioned crops is expected to benefit products of companies such as Coromandel, Godrej Agrovet, UPL, and PI Industries, which majorly target rice, maize, and cereals (refer to Exhibit 6).

* In terms of rainfall, according to IMD, rainfall across the country was up 8% (during the period from 1st Jun to 8 th Sept’25), which stood at 824mm, above normal rainfall levels of 760mm.

* This was clearly evident in the case of Northwest India/Central India/South Peninsula, wherein rainfall was up 36%/12%/7% as against normal levels, while rainfall in East and Northeast India declined 20% vs. normal levels.

* At the sub-divisional level, 19 sub-divisions (covering 46% of the total area of India) experienced normal rainfall during the period, while 12/3/2 sub-divisions (covering 35%/9%/10% of the total area of India) experienced excess/deficient/large excess rainfall.

* Overall, there was above-normal rainfall across key agricultural states, aligned with IMD's forecasts while regional disparities in rainfall and sowing persist.

Reservoir storage improves sharply; healthy levels expected, led by strong monsoon outlook

* Reservoir levels as of 4 th Sept’25 stood at 158 BCM. This is higher than the 148 BCM recorded at the same time the previous year and the last 10-year average of 130 BCM. Further, reservoirs are filled to 87% of their total capacity, inching up from 73% last month (7th Aug’25) and 83% in the previous season.

* Across the northern/eastern/western/central/southern regions, storage as a % of live capacity increased to 94%/71%/89%/87%/89% from 63%/68%/86%/86%/86%. Majorly, reservoir levels have improved YoY, fueled by higher rainfall levels.

* As of 14thAug’25, live capacity at FRL stood at ~182 BCM vs. 177 BCM in the previous year (up 3%).

* Given the trends in the progress of the monsoon and above-normal rains in this season, reservoir storage is expected to remain healthy.

Global headwinds and climate risks lead to a dip in the market prices of key Kharif crops

* According to the World Bank, India’s agricultural sector is entering a period of heightened uncertainty amid falling global commodity prices, escalating trade tensions, and rising climate risks.

* This has led to a decline in the prices of key food grains in India in Aug’25. According to agmarknet, prices of paddy/tur/bajra/maize/soybean/groundnut declined 3%/31%/3%/5%/9%/ 13% YoY, while cotton prices increased 3% YoY.

* However, the Cabinet Committee on Economic Affairs has approved the rise in the Minimum Support Prices (MSP) for 14 Kharif Crops for Marketing Season 2025-26.

* Key crops such as paddy/tur/bajra/maize/soybean/groundnut/cotton’s MSP spurted over FY14-26 (refer to Exhibit 16), with their margins over costs resting at 50%/59%/63%/59%/50%/50%/50%. Notably, the MSPs announced for all crops were higher than their mandi prices, which bodes well for farmer sentiment.

* Key agri inputs such as High-Speed Diesel (HSD) and fertilizers decreased YoY over Apr-Jun, while electricity spiked 11.7% in May’25. However, with healthy margins for crops as mentioned above, agricultural produce for Kharif crops is expected to do well this year.

* Although agricultural commodity prices remain a concern, it is expected to be offset by higher expected output and support from MSPs.

Our views

* The prices of key Kharif crops have declined, which may be offset by higher output due to favorable agricultural conditions. Further, support from the government in the form of MSPs is expected to maintain farmer profitability for the forthcoming agriculture season.

* With high rainfall and better reservoir levels, the outlook for the upcoming Rabi season is also expected to be encouraging. Rainfall at the pan-India level was up 8% from normal levels till 8 th Sept’25, continuing the strong run from CY24 onwards (up 8%), leading to higher reservoir levels.

* Although factors have been positive for agriculture, some key risks may dampen profitability, which can be hurt by excess rainfall in states, damaging standing crops (e.g., Punjab), inadequate storing/drying facilities after heavy rains, and excess soil moisture at the end of Kharif (could delay land preparation for Rabi crops).

* In the fertilizer space, we have a BUY rating on CRIN. In the agrochemicals space, we have a BUY rating on PI and GOAGRO and a Neutral rating on UPLL

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