September 25, 2013

 

India may not meet its wheat export target on cheaper supplies

 

 

Due to a drop of wheat price in the international market below the minimum set for shipments from the country, India's latest programme to export wheat from government stocks is likely to come a cropper.

 

New Delhi is looking to export two million tonnes of wheat that would help it reduce the pressure on overflowing state granaries and raise about US$600 million of revenue for the government, a target that now looks increasingly difficult to achieve.

 

The government's minimum target price for exports is US$300/tonne, set a year and half ago. Wheat comparable to the Indian variety, from Eastern Europe countries such as Russia and Ukraine, is now available 20% cheaper, said a New Delhi-based trader at an international commodities trading firm.

 

Lowering the minimum price for exports could become politically risky-that would mean selling the grain at below the cost incurred on sourcing it, and could give another weapon for opposition parties to attack the government with elections just a few months away.

 

Some traders say India can afford to cut the price for exports because a fall in the value of the local currency will absorb part of the impact when the export earnings are converted into rupees. The Indian rupee has fallen about 12% against the dollar since January 1.

 

According to government officials, three state-run Indian trading agencies are looking to firm up deals by next week to ship out up to 160,000 tonnes of wheat out of the two million tonnes that the government recently cleared to export.

 

India is likely to decide on future exports based on the response to this tender offer, an official at state-run grain-procurement agency Food Corporation of India said.

 

Over the past year and half, India has emerged as one of the biggest wheat exporters following a global shortage because of a drought in Eastern Europe where it sold 4.2 million tonnes of the grain at an average price of US$311/tonne, about US$10 above the cost it incurred for procuring the grain from farmers.

 

The strong run that India has enjoyed is beginning to wear thin because of better climate conditions and output in major wheat-producing regions including Europe and Canada. World wheat production in 2013-14 is projected at a record 708.9 million tonnes, a report from the USDA said.

 

India's state warehouses hold more than double of the grains required to supply through government-welfare programmes. This stock position is expected to increase by a third with the harvest of the summer-sown rice crop in early October.

 

According to traders, most of the bids for the tenders to export 160,000 tonnes of wheat would likely be in the range of US$260-US$270 a tonne. Buyers would also have to pay for freight.

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