January 30, 2009

India on Thursday (Jan 29) increased the floor or minimum support price of wheat by Rs80 to Rs1,080 per quintal for the 2009-10 marketing year.

The price hike for wheat is lower than the level recommended by the Commission for Agricultural Costs and Prices (CACP), but the increase is in line with the expectations of the majority of the farm community.

Global wheat prices are at a low and are lower than domestic wheat support prices, and despite the decision, wheat is likely to be relatively cheap for the domestic consumer due to record stocks and good production this year.

Wheat acreage for spring 2008-09 was slightly higher than the previous season at 27.5 million hectares. Weather conditions were deemed favourable and the sowing season started in early November.

India also expects this year's production to reach 79 million tonnes, exceeding last year's record of 78.4 million tonnes, and according to a recent USDA report, India's stocks have swelled sharply following a record state purchase of 22.7 million tonnes in marketing year 2008-09. The government bought wheat aggressively because of a steep increase in wheat support prices, and in order to curb purchases by traders.

Government stocks are expected to reach about 30 million tonnes by June 1 this year.

The USDA report said India will export wheat by May 2009, though the country remained unmoved on the prospect of reopening wheat exports. The USDA also said even if India does reopen its wheat export market, an export subsidy will cause prices to be non-competitive globally.