May 30, 2005

India's wheat prices rise in contrast to stable international levels

Worldwide wheat production and consumption are forecast to have minimal fluctuations in 2005-06, after massive production and build up of stocks in the year before. Recently, generally good weather conditions and moderate inventory have also stabilised world prices.

However, wheat prices in India have been rising despite a massive harvest. Large speculative funds are observed to be flowing into the wheat market. Traders and speculators take advantage of the opportunity to use futures trading to manage their price risk and earn profits at the same time.

The price rise will ultimately be borne by the final consumer. It is also suspected that some overseas interests and multinational corporations operating in India may have contributed to the unnatural massive price increase. By creating a concern for shortage and lobbying for imports, they would stand to gain from the rise in prices.

The weakness of Indian wheat production is also highlighted by the recent turn of events. Although the Indian wheat market is mainly insulated from influences worldwide, increasing domestic consumer demand dictates that annual wheat production must increase by around 3 million tonnes. This is necessary to meet rising domestic needs, keep prices under control and explore any export opportunities.

However, fluctuating output that often falls short of the target is a cause for concern in the last five years.