May 4, 2012

 

India's weaker rupee boosts wheat exports

 

 

Boosting the competitiveness of the country's grain offerings and possibly aiding government efforts to trim bulging food grain stocks, India's wheat exports have picked up with a weaker rupee.

 

India only opened up the wheat market to exports in September after banning any shipments for three years due to a domestic shortage, but the going was slow for several months due to the high cost of procurement for government reserves.

 

The pick-up in exports will give the government a chance to offload some of its reserves in the domestic market, just when it's struggling to find space for new-season wheat procurement in state-run warehouses.

 

India-based traders have signed export deals for about 300,000 tonnes of wheat for delivery by June, mainly to the Middle East, trade executives said Thursday (May 3).

 

Until recently, Indian wheat prices were quoted above US$300/tonne, a price level that was finding few takers because it was higher or just on par with prices from other global suppliers.

 

But Indian wheat prices have fallen to around US$280/tonne, cost-and-freight, and are cheaper than supplies from competitors such as Australia, although this may be short-lived.

 

"We have only a small window for exports. Supplies from Russia will start within a month, and then prices may drop internationally," said a Mumbai-based executive of an international trading company.

 

The rupee sunk to a four-month low against the US dollar early Thursday amid growing concerns about the country's gaping budget and trade deficits and worries that capital inflows will remain weak due to slowing domestic economic growth. The dollar was trading at INR53.19 (US$1) in mid-morning trade.

 

Although the government lifted the ban on wheat as well as rice exports last September in a bid to reduce high stocks that had accumulated at state-run warehouses, India has struggled to export any wheat because of the high procurement costs from farmers.

Local wheat prices have started slipping below the cost of procurement--the guaranteed price paid by the government to farmers for acquiring stocks for its reserves---as the ongoing harvest of a record crop has suddenly increased local supplies.

 

India had set the procurement cost at INR12,850 (US$241) per tonne for this season. Faced with an influx of wheat from the new crop, the government is expected to release around 2.5 million tonnes of wheat in the open market in batches over the next six months from its stocks at below the current cost of procurement.

 

"(Local) wheat prices won't increase and they may fall further," said a prominent southern Indian flour miller who didn't want to be identified.

 

Simultaneously, it's aiming for a 50% rise in rice exports above the four million tonnes exported since September to further reduce the storage constraint, said a government official who didn't want to be identified.

 

Unlike wheat, India's rice exports have been brisk due to competitive prices. Officials say there could be a shortfall of around 10 million tonnes of food grain storage space by the end of this season's procurement in June.