July 27, 2012

 

India's wheat prices rise beyond 20% on strong demand

 

 

On the back of strong domestic and export demand, India's wheat prices have increased by more than 20% over the past month, despite limited availability in the private market.

 

Trading companies that have sold wheat to overseas customers in advance are rushing to cover their requirements, helping to propel exports in the marketing year that began April 1 beyond one million tonnes.

 

International buyers are increasingly turning to India and Pakistan to meet their immediate needs amid a severe drought in the US, a decline in output in the Black Sea region and rising prices for Australian supplies.

 

Multinational grain-trading companies that have sold optional-origin wheat to their customers are increasing the proportion of grain they source from India, accounting for one of the factors that have pushed domestic prices sharply higher.

 

Wheat from Uttar Pradesh state with 11.5% protein, delivered at Kandla port, traded around INR15,500-16,000 (US$277-285) a tonne this week, up from INR13,000 (US$235)per tonne a month earlier.

 

High-grade Durum wheat from Rajasthan province with 13.5% protein is trading around INR19,000 (US$343) per tonne at Kandla port, an increase of around 26% over the past two months. Since mid-June, export prices of wheat with 11.5% protein have increased to US$310-315per tonne from US$255/tonne, free on board, traders said.

 

The government is the single largest buyer of wheat in India, and its procurement this year accounts for nearly 40% of output, up from 32% in 2011-12. Its wheat purchases are up 35% so far in 2012-13, at 38 million tonnes from total output of around 94 million tonnes.

 

While government stocks are bulging supply in the private market has tightened because brokers are holding back wheat in anticipation of a further escalation in prices, a New Delhi-based exporter said.

 

If Russia decides to curb exports through tariffs or a blanket ban--as it did in 2010, sparking a sharp global wheat price spike--India's wheat prices will rise further, said a Singapore-based analyst with a global commodity trading company.

 

With Russian production this year potentially falling below 45 million tonnes compared with an earlier projection of 49 million tonnes, traders are wary of any move to restrict the flow of grain, and haven't been making firm offers for Russian wheat for September shipment, an exporter in Lausanne said.

 

Meanwhile, demand for Indian wheat is strong, and April-September exports are forecast by traders to reach around 1.5 million tonnes.