May 1, 2007

India gets poor response to wheat import call options

 

 

Food Corp of India (FCI) failed to generate adequate interest among prospective suppliers for its tender to import wheat, if required, via call options while another government-run company invited bids to try mopping up a million tonnes from the cash market.

 

FCI, the Indian government-run local food grains procurement agency that was, for the first time seeking wheat from the global market, received only two bids at very high prices between US$298.50/tonne and US$328.75/tonne inclusive of premium.

 

"Of the various internationally reputed suppliers that have been invited to bid for our call option contracts, two of them offered their price quotes," the official told Dow Jones Newswires.

 

He said one of the companies, Hamburg-based Alfred C. Toepfer International offered to supply around 65,000 tonnes wheat at Mundra port on India's west coast in September at US$298.50/tonne including a premium of US$21/tonne.

 

The other company, Louis Dreyfus offered three shipments of 40,000 tonnes each for delivery between August and October quoting around US$302.25/tonne for India's west coast and around US$307.25/tonne on the east coast, excluding premium, he said.

 

The premium it quoted is US$18.50/tonne, US$20/tonne and US$21.50 for delivery in August, September and October.

 

The officials of the two companies could not be immediately reached for comment.

 

FCI was seeking to buy quantity up to 800,000 tonnes of wheat each month, if it exercised the call options between August and January.

 

However, it failed to get adequate offers in terms of volumes from global wheat trading companies.

 

"The poor response to FCI's initiative is not surprising. There are too many risks involved and so we decided not to participate in the call options tender," said a Mumbai-based official of a global trading company.

 

Analysts say this isn't surprising as FCI sought offers with validity of one month in a global market where prices change by the minute.

 

They said rules for demurrage were also stringent and added to price risks.

 

State Trading Corp issues tender

 

Within hours of FCI's call option bids being opened, another government-run company STC made yet another foray--its first this year--into the global wheat market. Last year, STC imported 5.5 million tonnes wheat on behalf of the government.

 

It has now issued a tender to import up to 1 million tonnes of wheat, again on behalf of the government. Offers have to be submitted by May 10 and will be evaluated by May 18.

 

Even though local wheat procurement by the government from farmers is still on, government doesn't want to take chances with supplies.

 

Local procurement is estimated at 7.8 million tonnes so far in 2007, much below the year-earlier period.

 

"The government has decided that action may be initiated by STC for import of 1 million tonnes wheat in suitable tranches, by July 2007, since there can be no compromise on food security," said Junior Minister for Food, Akhilesh Prasad Singh.

 

Agriculture Minister Sharad Pawar said the government is trying to mop up maximum possible volumes from the local market for running the subsidized sale programs but is prepared to import as well.

 

He expressed concern and regret that some of the local agencies under administrative control of the provincial governments that can play a pivotal role in purchasing wheat to build up stocks and ensure a reasonable price to farmers aren't taking the initiative expected of them.

 

"Some of the provinces are not ready to buy even their own subsidised sale requirements. This is not the way to treat such an important issue," said Pawar.

 

Analysts say farmers have also been holding back wheat in anticipation of higher local prices in the next few months.