Raw Input. Global wheat stocks set to dwindle

The global wheat market has been volatile since the beginning of this year with weather concerns in some parts of the world dominating the discourse and speculative capital rushing in. Geopolitics — the Russia-Ukraine conflict — added grist to the mill due to perceived risk of supply disruption, which never materialised.

The picture is now improving with a lot more clarity on production prospects. No wonder, wheat futures prices (CBoT) have drifted lower in line with corn and were down nearly 11 per cent in May.

Production picture After record production in 2013-14 made possible by unusually high yields, expanded trade and larger carryover stocks, the world wheat market is set to face relative tightness in 2014-15.

On current reckoning, in the upcoming 2014-15 season, world wheat production may be down by 2 per cent with yields retreating from high levels, while consumption may rise by 1 per cent through gains in food and feed use. With production trailing consumption for the year, older stocks are set to be drawn down. Notwithstanding these subtle changes in the market fundamentals, there will be ample global supplies during the year.

Crop prospects in Europe are rated high as near-perfect conditions may lead to a record-breaking harvest (145 million tonnes). While the US may harvest a large crop but still lower than last year, Australia may be a risk factor due to prolonged dry conditions. Yet, a lower harvest in Australia is unlikely to dramatically alter the weak price outlook. The trade is expected to be lower in 2014-15 as the exceptional demand that emanated from China, Brazil and Iran may normalise. In particular, China’s imports may decline by half from 7 mt of 2013-14. As most of the destination markets have built inventory, replacement will be slow.

The outlook is further impacted by enormous inventory in Canada that continues to face transportation bottlenecks. Anticipated huge corn harvest, especially in the US, is also pulling wheat down. As wheat is currently trading at a premium to corn, feed and residual demand may move away from wheat to corn. India outlook

Where do these developments leave India? According to the government’s latest estimate, wheat production reached 95.8 mt in 2013-14, higher than the year’s target of 92.5 mt and higher than the previous year’s production of 93.5 mt. Of course, private trade believes, the actual crop size might be lower by a couple of million tonnes because of damage caused by unseasonal rains. By end-May, wheat procurement had crossed 27 mt and is likely to reach 28 mt.

Firm open market prices relative to the government procurement rate of ₹14,000 a tonne plus bonus announced by some States has limited the volume of procurement. Private players have been buying wheat at prices between ₹14,500 and ₹16,000 a tonne depending on quality.

While wheat exports through government agencies have halted, private trade continues to ship out quantities. Weaker global market outlook and firming rupee combine to slow the pace of shipment. Monsoon rains (July-August) are likely to retard cargo movement.

Abundant availability, large public stocks and slowing exports mark the Indian wheat scenario. Prices usually firm up after August. Weather concerns cannot be wished away either. It is still unclear what the new government’s food policy would be in terms of procurement, distribution, export and subsidy.