June 13, 2012

 

India may double wheat exports on bumper harvest

 

 

Due to a bumper harvest and lack of domestic storage space, India is likely to export 4.5 million tonnes of wheat in the year to March 31, 2013, and has the potential to double its export, an official with the United Nations Food and Agriculture Office said Monday (June 11).

 

Abdolreza Abbassian, a Rome-based senior economist at the Rome-based FAO, said in an interview that if India exports more wheat it could push down global prices.

 

What India does with its growing stockpile of wheat is closely watched by market participants that include big trading companies like Glencore International AG and Cargill Inc.

 

In a tender last month, global trading companies, including Glencore and Cargill, submitted bids for Indian wheat that were well below global average prices. That suggests the companies expect global prices to fall if India decides to export some of its around 50 million tonnes stockpile of wheat.

 

New Delhi has few options but to export wheat after a good harvest and lack of storage space, or else part of the crop is likely to rot. At the same time, there are likely to be major bureaucratic hurdles to getting the exports going.

 

For one, the prices offered in the recent tender by global trading companies were below the price India's government paid farmers for the crop. Such a loss at a time the government is running a huge budget deficit will be hard to justify in Parliament and is likely to delay any exports.

 

India urgently needs to clear storage space for the latest wheat harvest and the main rice crop that will be harvested in October but no timeframe has been set to dispose of the excess stockpiles.

 

The government-run State Trading Corp., in a tender that closed last month, asked private Indian and global trading companies to submit bids to buy some of the stockpiled wheat. The companies offered to buy the wheat at up to US$230 per tonne, free on board, well below current market rates of US$252-255 per tonne and also lower than the government's cost of procuring and storing the grain.

 

Glencore offered to export a total of 98,000 tonnes of wheat at around US$230 per tonne, officials said. If India exports large amounts of wheat at these prices, it may reduce demand for Australian grain and put a downward pressure on global prices, said Paul Deane, a Melbourne-based economist with ANZ Banking Group. The cheapest Australia and Russian milling wheat is currently offered around US$260 per tonne for shipment in August.

 

India's weakening rupee against the US dollar, which makes its exports cheaper, definitely would make the nation's wheat exports attractive, said Kaname Gokon, Tokyo-based deputy general manager at Okato Shoji Co. Ltd, a brokerage.

 

Global wheat prices might also come down because of the upcoming European and Black Sea region harvest, a Mumbai-based commodities trading executive said. But hurdles remain. Analysts say India's government will have to categorise the difference between what it paid farmers for wheat and the lower export price as a World Trade Organisation-compatible export incentive such as ocean freight reimbursement.

 

Even if India's government approves exports, the issue of such reimbursements could still prove contentious, TPS Narang, an advisor at New Delhi-based commodities trading company, Emmsons International said.

 

Overseas sales of one million tonnes of wheat from government stocks could translate into losses to the government of almost INR8 billion (US$143 million), Narang said.