Concerns over reduced output for the second consecutive year and rapidly depleting stocks have set a firm tone for wheat prices in India over the last five months. The Delhi spot market is currently quoting at ₹1,825 per quintal, up 14 per cent from the price level in April. The Centre has estimated domestic wheat output at 93.5 million tonnes (mt) for FY2015-16 against the demand of 88 mt. However, the market estimates are far lower at 84-85 mt due to fall in acreage to 29 million hectares from 31 million hectares a year ago. Moreover, unfavourable weather and successive droughts will keep yield and output depressed.

Depleting stock Lower output for 2015-16 prompted the Food Corporation of India (FCI) to procure 22.93 mt as on June 30 against an initial target of 29 mt and 18 per cent lower than 2014-15. In FY 2016-17, the FCI has sold 2.35 mt of wheat under open market sale scheme (OMSS) till September end, while holding 24.24 mt, down 32 per cent from a year ago. As per buffer norms, the central pool should have a minimum stockof 20.5 mt by October 1. With PDS monthly requirement of 2-2.5 mt before the arrival of new season wheat, there is expectation of likely shortage in the central reserve. Thus, the government is considering restricting the sales under OMSS in view of the falling procurement and inadequate stock levels.

Growing demand Over the last few years, wheat demand from South India has increased due to change in food habits. At present, hardening domestic prices have made importing wheat more economical than buying domestically.

Losing its tag of the dominant global exporter, India is likely to import 2 mt in FY 2016-17 as per USDA to meet production and stock shortfall .

Wheat demand remains firm between October and December. So, one can expect good buying in this period. Diwali buying will not be impacted by the contracted imports as they will not reach Indian ports before the festival, so buyers will have to buy from within India. This will further deplete the stocks with private stockists.

The Commission for Agricultural Costs and Prices has proposed a raise of ₹100 per quintal for wheat in the upcoming rabi season which, if approved (most likely), will set the benchmark prices higher. However, we can expect prices to correct with increased availability of imported wheat and moderation of demand.

Global market Bumper global harvest caused December future prices at CBOT to hit their lowest levels since 2006. The USDA projects record high wheat production of 744.85 mt in 2016-17, exceeding consumption (736.67 mt) for the fourth successive year. This has led major exporters such as the US, Russia, Australia, and Canada to sit on increased stock piles.

The US, the third largest exporter, is expected to carry the highest amount of stock (29.9 mt) in nearly 30 years (1987-88) due to good crop and subdued export prospects. The USDA estimates the US to produce 63.15 mt in 2016-17 against 55.84 mt a year ago — primarily due to favourable weather and thus high yield as, despite 6 per cent lower acreage, wheat output is expected to go up 13 per cent. Firmer dollar too will limit US exports by making its exports comparatively costlier than other suppliers’.

Russia’s entry into the global wheat market has been one of the reasons behind plunging of global wheat prices due to its exceptionally fertile “black sea” region. A weak rouble and the country’s decision to cut export taxes to zero through July 2018 will boost its exports further. Russia is expected to produce 72 mt in 2016-17, up by 18 per cent from 2015-16 and will remain the world’s largest exporter for the second consecutive year.

Outlook India will soon have lower stocks than the buffer norms warrant and the next crop is months away, which will support wheat prices in the near term. However, we can expect domestic wheat prices to correct in the next couple of monthswith increased availability of imported wheat and moderation of demand.

(The writer is Vice-President and Head, Agriculture Food and Retail at Biznomics Consulting)

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