Informist, Wednesday, Mar 13, 2024
By Afra Abubacker
MUMBAI – Even as wheat stocks in government godowns plunged to a seven-year low as of Mar 1, the writing was already on the wall, thanks to record open market sales, free food grain scheme and lower output last year. Now that the wheat crop is ready for harvest, all eyes will be on production, with market participants hoping that weather won't play spoilsport like in previous years.
According to data by the Food Corp of India, wheat stocks with the government dipped to a seven-year low of 9.7 mln tn as of Mar 1, and slipped below the buffer norm of 13.8 mln tn (operational stock of 10.8 mln tn and strategic reserve of 3 mln tn).
"FCI (wheat) stock fall is no surprise," G. Chandrashekhar, a commodity expert, said. The government is worried about inflation and has been selling wheat through open market sales and giving free grain through the public distribution system, he said.
To check wheat prices, the Food Corp of India has been offloading wheat through the open market sales scheme, and sales in 2023-24 (Apr-Mar) scaled a record high of 9.41 mln tn as of Feb 28. FCI has been breaking its wheat sales record in almost every other weekly auction since January.
The sale of wheat by the nodal procurement body gained traction amongst millers and processors as the selling price in the auctions was lower than market rates.
The government has wound up its open market sales programme, as it started procuring new crop arrivals from Mar 1. In its last auction on Feb 28, FCI's weighted average selling price of wheat across the country was around 2,250 rupees per 100 kg in the north zone and 2,401 rupees in the east zone. The all-India average wholesale price of wheat on Feb 28 was 2,734.63 rupees per 100 kg, according to the consumer affairs department.
"The government wants to bring down prices before procurement. So, farmers sell it to the government rather than (in) the open market," Pramod Kumar S, president, Roller Flour Millers Federation, said.
However, wheat market prices at Indore, Madhya Pradesh are currently 2,350-2,450 rupees per 100 kg, above the minimum support price of 2,275 rupees per 100 kg. And two state governments--Rajasthan and Madhya Pradesh--have announced an additional bonus of 125 rupees per 100 kg, over and above the minimum support price.
While wheat harvesting has commenced in a few states like Gujarat, and some parts of Rajasthan and Madhya Pradesh, major wheat growers like Punjab will start harvesting only after Baisakhi in April, Chandrashekhar said. Uttar Pradesh, Madhya Pradesh, Punjab, Haryana, and Rajasthan are the major wheat-producing states in India.
WEATHER VAGARIES
As the crop nears harvest, the market hopes weather conditions will remain favourable. However, on production estimates, the market is not as optimistic as the government. As per the second advance estimate released by the farm ministry, India is likely to produce 112 mln tn wheat in 2023-24 (Jul-Jun), below the target of 114 mln tn set by the government earlier. Last year, wheat production was 110.6 mln tn.
The market, however, does not see wheat output exceeding 110 mln tn this season. If weather conditions are favourable, output is likely to be around 102-105 mln tn, said Chandrashekhar. While Rahul Chauhan, director, IGrain India, sees wheat output at 105-110 mln tn.
In addition, India has a history of experiencing hailstorms in March and April, and production could fall further to 95-98 mln tn, if the weather is not favourable for the country’s most important rabi crop, said Chandrashekhar. March is a crucial month for wheat crops as it is the vital grain-filling stage.
If trends from the past few years are taken into account, the month of March hasn’t been too kind to wheat crops and farmers. In March 2023, untimely rain and hail hit wheat crops, while in the year before, heat waves wilted the crop. As a result, in May 2022, India banned wheat exports to ensure sufficient availability in the domestic market.
While all eyes are cast on wheat output, there is scepticism on the government's estimates. Bimal Kothari, chairman of India Pulses and Grain Association, said it is very difficult to challenge the government's numbers as crop surveys require a lot of investment and private bodies can’t afford it. "Numbers are only indicative and could be far from reality," he said.
Even in favourable scenarios, Chandrashekhar sees FCI wheat procurement in 2024-25 (Apr-Mar) falling short of the target. "My sense is that procurement would be affected and even fall below the target." Last rabi marketing season too, the government could not meet the procurement target of 34.1 mln tn, and ended up with only 26.1 mln tn in its central stock pool. Though the government has trimmed its procurement target to 30-32 mln tn in 2024-25 rabi marketing season, Chandrashekhar sees FCI procuring only 25-28 mln tn.
Doubts cast on FCI procurement do not bode well for consumers, as FCI stocks are at a seven-year low. Low stocks in the central pool mean less ammunition to tame prices by offloading stocks through open market sales scheme in 2024-25 (Apr-Mar).
The Indian wheat market is used to seeing surplus FCI stocks of 20-30 mln tn in March. But now we see a sharp decline in stocks and it’s an "alarm bell" for the government, Chandrashekhar said.
To replenish stocks to surplus levels, India needs at least two seasons of bumper wheat production, Chauhan said. Otherwise, Indian government needs to import wheat from Russia or encourage traders to import by lowering the 40% import duty, market participants said.
"Despite tight supply, the government has not reduced the 40% tax on imports or bought directly from top suppliers like Russia. Instead, it has sold wheat from state reserves," Amit Gupta, research analyst, Kedia Advisory, said in a note.
In January, Piyush Goyal, food and commerce minister, said India does not plan to import wheat as farmers are likely to harvest a bumper crop. "Ground reports indicate that the crop is quite good and this year's production is expected at a record 114 mln tn," Goyal told reporters.
Traders say it's too early to discuss imports as it will depend on the actual wheat output and the newly elected government. "The newly-elected government will take a call (on imports)," said Kumar.
“OMSS (open market sales scheme) has been effective in controlling prices, otherwise, (wheat) prices would have gone up to 40 rupees (per kg)," Kumar said.
In the near term, wheat prices are likely to be largely steady as arrival of the new crop is on. But if a hailstorm or heatwave hits crop in March or April, prices will firm up, Chandrashekhar said. "There is a lot of uncertainty in wheat market," he further said.
End
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.