A Good Monsoon and the Rural Consumption Cycle: The Lag Nobody Prices
Markets reprice rural-facing consumption stocks the moment monsoon forecasts improve. The actual transmission takes two to three quarters, which is why the trade so often disappoints in the near term.
The chain
- Rainfall determines sowing area.
- Sowing plus weather through the season determines yield.
- Yield plus procurement price determines farm income.
- Farm income, net of debt service, determines discretionary spend.
Each step has slippage. A good monsoon with a weak procurement price produces very little additional consumption.
Rain is an input. Income is the variable.
