October 8, 2013

 

India's target to offload wheat stocks may not push through

 

 

In order to ease storage and enhance export revenues by US$600 million in the current fiscal through March, India intends to ship out two million tonnes of wheat from official reserves.

 

However, a 25% drop in global wheat prices in the last one year has taken a toll on India's intention. Expectedly, state-run trading agencies have received bids at prices 12% lower than the floor rate of US$300/tonne set by the government last year for wheat exports, stoking fears that the target to offload two million tonnes will be missed at this rate.

 

While State Trading Corporation (STC) has got the highest bid at US$267/tonne in a tender for export of 60,000 tonnes of wheat from the west coast (Mundra), Metals and Minerals Trading Corporation (MMTC) has received the highest bid at US$261.25 for export of 60,000 tonnes from the east coast. Similarly, the highest bid received by PEC was US$260/tonne for the shipment of 40,000 tonnes of the grain from the west coast, the sources added.

 

Trade experts have termed "impossible" the government's efforts to export wheat at a floor price of US$300/tonne for it is vastly out of sync with market realities. While wheat from Russia and Ukraine is available at US$230-240/tonne, who will buy the Indian wheat at US$300?," asked TPS Narang, a noted grain trade analyst who is also an advisor at trading firm, Emmsons International. He added that wheat prices in key global markets will likely remain flat until December and any pick-up in the rates may be expected from January due to extreme winter conditions in countries, including Russia.

 

Due to lower production in key supplier Russia and a smaller US harvest of corn, which competes with wheat for animal feed, global wheat prices were ruling high around US$320/tonne a year earlier, Narang said. However, with better wheat production forecast for this year and a consequent drop in prices, the country is losing the advantage it enjoyed last year. Global wheat output is projected at a record 708.9 million tonnes in 2013-14, the USDA said recently.

 

India became one of the largest wheat exporters since April last year, during which it shipped out 4.2 million tonnes of the grain at an average price of US$311/tonne - US$10-15 above the cost it incurred for purchasing from farmers - and earned US$1.4 billion export revenue.

 

"The government hardly has any option but to reduce the floor price as it has already missed the bus in grain exports. First, it delayed the decision until September 2011 beyond any logic on lifting a general ban on wheat exports. Had they lifted the ban earlier, the country could have easily exported much more grain, taking advantage of a ban by Russia on its exports. Second, the government should have intensified efforts to facilitate more exports when prices were still higher during the January-March period," said a senior executive with a Delhi-based trading firm.

 

The government will decide on whether to reduce the floor price for exports soon, factoring in responses to the latest tenders floated by the trading agencies, said a senior official, without giving a timeframe.

 

On August 8, the Cabinet Committee on Economic Affairs allowed the state-run agencies to export two million tonnes of wheat at a floor price of US$300 a tonne as the government sought to trim stocks to ease storage and boost trade earnings by a targeted US$600 million to cut the current account deficit.

 

Faced with the prospect of a bumper wheat harvest in the current crop year through June 2014 and a good summer production of grain crops, including rice, the country is set for another year of a storage crisis if stocks are not offloaded quickly. Moreover, wheat and rice stocks with state-run agencies have risen to nearly 59 million tonnes as of September 1 compared with the requirement of about 27 million tonnes.

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