Supply Shortage Boosts Wheat Prices

NEW DELHI (Commoditiescontrol) – With rise in festive demand, wheat prices have regained recently and traders are looking positive tone forward anticipating weak supply as Food Corporation of India (FCI) has reduced quantity of wheat for e-auction in Madhya Pradesh.

However, FCI has sufficient stocks of wheat according to stocking norms. In the month of July, wheat stock with FCI was recorded at 301.81 lakh tonnes which reduced to 268.79 lakh tonnes in August. While the stocks should be at 275.8 lakh tonnes in July, 205.2 lakh tonnes in October and 138 lakh tonnes in January, as per stocking norms.

Under Open market Sales Schemes (OMSS), FCI has offloaded 14,21,750 lakh tonnes of wheat so far through e-auction while the government agency had offered 20,37,699 lakh tonnes. In month of July FCI sold 5,82,350 lakh tonnes of wheat under OMSS while total quantity sold in three e-tender so far in August is at 43,000 lakh tonnes. Fourth tender of this month is scheduled today.

Quantity of wheat put for e-auction in Madhya Pradesh began with 1,00,000 tonnes which was reduced to 50,000 tonnes and further 40,000 tonnes to 25,000 tonnes.

It should be noted that Prices of wheat came under pressure in the spot market last month due to increased supply from FCI warehouses. As supply squeezed prices shot up amid increased demand from flour mills. Price quotes of e-tender also increased nearly Rs. 100/100kg following with wholesale markets across the country witnessed firm tone in wheat prices past week.

Supply of grain remained interrupted in major markets of Madhya Pradesh and Rajasthan this month due to heavy rainfall and flood. Normal business activity has not resumed so far in the majority of grain markets in Madhya Pradesh due to thin arrivals, said Manoharlal Khandelwal, a Bhopal based trader.

According to him, wheat prices are expected to remain firm this year if current circumstances don’t change.

FCI could procure only 229 lakh tonnes of wheat this year as market rates were higher than Minimum Sport Prices (MSP) fixed by the government at Rs. 1,525/100kg for wheat.

While target for wheat procurement was over 300 lakh tonnes for current RMS against 280 lakh tonnes procured last year (RMS-2015-16) for central pool.

Food Minister Ram Vilas Paswan has said that government may consider reducing import duty on wheat in case of price hike only. However, the minister claimed sufficient stocks of wheat with government agency, so there is least chance of any reduction in import duty right now.

India imported a decent quantity of wheat nearly five lakh tonnes last year 2015-16 due to lower crop in the country as untimely rainfall during harvesting season damaged the quality of the crop which gave reason to the domestic millers to carry out buying in overseas market. To check wheat import, the government had to impose 10 percent import duty on wheat in August 2015 for the first time since 2006. This was revised on October 19, 2015 and import duty on wheat was raised to 25 percent to restrict overseas buying in the wake of falling wheat prices in the international market and motivate domestic buyers to source their requirement from Food Corporation of India (FCI).

Again, the Central Board of Excise and Customs (CBEC) in a notification dated March 28, extended 25 percent import duty on wheat from March 31 to June 30, 2016.

On June 17, the government further decided to extend 25 percent import duty on wheat to curb inward shipment as domestic production is comparatively better than last year.

Wheat production has been projected at 935 lakh tonnes in 2015-16, higher than the previous year’s 889.4 lakh tonnes, according to fourth advance estimates released by the agriculture ministry on August 2, 2016.

Mill quality wheat is currently ruling at Rs. 1,700-1,800/100kg in agriculture market (primary market) of Madhya Pradesh and Rs. 1,670-1,700/100kg in Rajasthan. Prices have shot up nearly Rs. 50-100/100kg.

In coming days arrivals may increase from farmers’ sources, hence, there is possibility of further pressure, however, it will hardly impact prices as demand is expected to remain firm, according to majority of the traders in Madhya Pradesh and Rajasthan.

Meanwhile, government is all set to clamp down on hoarders to check the prices of essential commodities. The Food Corporation of India (India) has also revised upper limit of wheat to curb hoarding. Now, a bulk consumer or trader can bid in single e-auction under OMSS(D) for 2,000 tonnes of wheat. It should be noted that upper limit was reduced from 5,000 tonnes to 500 tonnes previously to as a measure to check hoarding to wheat but it was revised later to 2,000 tonnes.

(By Commoditiescontrol Bureau; +91-22-40015533)