March 7, 2013

 

 

As the world's second-biggest wheat producer tries to cut massive government stocks, India may soon allow an extra five million tonnes of wheat exports, more than double the volumes this year.

 

The move would mean India was exporting a third of the quantities of the US, the No. one exporter, and would almost certainly drag down further global prices that have already hit an eight-month low. The government has already given permission for 4.5 million tonnes of wheat exports in 2012 so the additional five million tonnes would take the total to 9.5 million tonnes.

 

"The cabinet is expected to allow five million tonnes of wheat exports either this week or next week," one source, who is directly involved in the decision making process, said.

 

Consultations with other ministries on the food ministry's proposal for the extra exports are almost over and now only the cabinet has to approve it, the second source said. With only 47 million tonnes of total grains storage space and February 1 grains inventory totalling 66 million tonnes, some government stocks of wheat and rice are lying under tarpaulin sheets in open fields, exposed to rot and decay.

 

The government wants to cut down the stocks exposed to the weather before the advent of monsoon rains in June. Government-backed companies have already sold three million tonnes of the 4.5 million tonnes of wheat exports allowed last year. The government is currently exporting wheat at about US$300 a tonne free on board (FOB). India is primarily selling wheat to Africa and the Middle East.

 

"Going forward, international prices will only fall and it makes sense for the government to ship out as much as possible," said Tejinder Narang, adviser at New Delhi-based trading company Emmsons International.

 

By June or July, India would be forced to sell at US$260 a tonne FOB as Black Sea harvests will drag down global prices, Narang said.

 

"India needs to grab the golden opportunity before global wheat prices bottom out once supplies from the Black Sea origin hit the market," said Veena Sharma, secretary at the Roller Flour Millers Federation of India, an industry body.

 

Benchmark US wheat prices are trading near their lowest since June as supply prospects have been boosted because melting snow across the US Plains has provided soil moisture to the drought-stricken winter crop. A forecast of higher production in Australia is also weighing on global wheat prices.

 

India lifted a four-year-old ban on wheat exports in September 2011 by allowing private traders to ship out the grain, followed by orders for exports from government stocks. The government, which had to ban exports in 2007 to keep a lid on domestic prices and bolster local supplies, regulates exports of grains to ensure ample supplies for its 1.2 billion people.

 

New Delhi buys grains from local farmers at fixed prices to protect them from any distress sale and build stockpiles to sell subsidised food to the poor.