July 30, 2012

 

 

Despite below-average monsoon rainfall which has not yet become a big concern for the government to apply the brakes on grain exports, India's state-run trading companies have floated yet another tender to export wheat.

 

However, the government said it is keeping a close eye on domestic weather conditions. A ministerial panel may meet early next week to review the drought-like situation in the country, Farm Minister Sharad Pawar said Thursday (July 26), after a meeting with the country's Food Minister.

 

For now, continued Indian supply could provide much-needed relief to a market that has seen prices rise to multi-year highs following dry weather in the US, the Black Sea region and South America.

 

State-run PEC Ltd. said on its website that it issued a tender to export 60,000 tonnes of wheat from government stocks. Earlier this month, PEC, along with two other state-run companies -- MMTC Ltd. 513377.BY -2.90% and State Trading Corp. -- issued separate tenders to export a total of 240,000 tonnes of wheat from state stocks.

 

This is significant at a time when global supply is tight and prices are rising amid dry weather conditions in other major producing countries. Fresh exports from India, the world's second-largest wheat producer, are likely to provide some cushion to prices after US wheat futures hit a four-year high last week.

 

The government may issue more tenders at regular intervals as international prices have risen to levels that make exports lucrative, said Vandana Bharti, assistant vice president at SMC Comtrade Ltd.

 

"The adverse weather conditions in the US and Russia have impacted global supply and India will benefit from this price rise," she said.

 

The opportunity to export comes as India's grain warehouses are overflowing after two successive years of bumper crops. Nearly six million tonnes of wheat is stored in the open because of a lack of storage space, making it susceptible to spoilage.

 

Although the government had approved the export of up to two million tonnes of wheat from state stocks earlier, not much has been shipped as market prices were below the price at which the state bought the wheat from farmers, making exports a loss-making proposition.

 

In May, the State Trading Corp. cancelled a tender to export wheat because the bids received were way below the government's cost of procurement. Export prices have now risen to US$290-300 a tonne from around US$230/tonne around three months ago.

 

A top farm ministry official said Wednesday (July 25) that the government doesn't want to adopt a start-and-stop approach to exports as it would send the wrong signal to the international market.

 

In Thursday's (July 26) announcement, PEC said additional exports will be allowed from the eastern port of Krishnapatnam. Bids will have to be submitted by August 16 for shipment in September.