May 20, 2010

 

Abundant Indian wheat to swell global grain surplus

India will probably ship additional cargoes of wheat to its neighbours and the Middle East, giving competition to Black Sea-origin grain and squeezing global benchmark prices.

 

India's fourth good harvest in a row has swelled wheat inventories to 31 million tonnes, almost eight times its target of four million, forcing authorities to pile up nearly seven million tonnes of grain under tarpaulin in the states of Punjab and Haryana.

 

"There is so much wheat lying around that storage is a big problem, they have to export wheat," said Veeresh Hiremath, a senior analyst with brokerage Comtrade in southern Hyderabad. "I believe there will be more government-to-government deals."

 

Nonetheless, India is reluctant to completely scrap its ban on export of wheat and non-basmati rice for fear that could stir up further criticism and public protest against rising food prices, which have surged more than 16% in the year to May.

 

As an immediate measure to tide over the problem of plenty, India will keep selling grain, particularly wheat, to its South Asian neighbours so as to fill its limited storage space with newly harvested grain and cut the risk of damage to staples in makeshift facilities, analysts and trade officials said.

 

"Wheat stored under tarpaulin is 100% prone to damage due to monsoon rains. It is quite vulnerable," said Adi Narayan Gupta, chairman of the Wheat Products Promotion Society. "It is prone to rot and decay. Even in good weather, it is not safe to stock wheat in the open beyond six months."

 

Traders said Indian wheat prices, propped up by generous rates paid to farmers by official agencies, are too high to be competitive in distant markets but in neighbouring countries can challenge Black Sea wheat, which has many users in South Asia.

 

"The implication of such a deal (sale to Bangladesh) is that it is adding to the competition in the world wheat export market," said Toby Hassall, an analyst with CWA Global Markets in Sydney.

 

Indian wheat is quoted around US$230-US$240 a tonne, including cost and freight, to Bangladesh, against US$230 a tonne for Ukrainian wheat and US$280 a tonne for Australian prime wheat.

 

Traders say Indian supplies would put more pressure on benchmark Chicago wheat prices, which have lost around 14% this year on prospects of growing global supplies of the grain for a third straight year.

 

"What the market has to do now is to generate that additional demand and the way it does that is by weak prices," said Hassall. "The price of wheat will have to fall enough so that it stimulates additional demand to draw down the swelling global stockpiles."

 

In a forecast this month, the USDA put 2010/11 world wheat closing stocks at about 198 million tonnes, up from around 193 million this year and 165 million in 2008/09.