NEW DELHI (Commoditiescontrol) – A record production of wheat this year in India kept its prices under pressure during early three months of the current marketing season. After recent fall, prices of the commodity are ruling near bottom line and there is much possibility that with rise in demand wheat prices will improve gradually in the domestic market.
However, fundamentals are negative for uptrend in wheat prices as domestic supply is higher than its demand which has limited any big rally. Nearly one third of the domestic crop is in the stocks of FCI which has procured 308 lakh tonnes wheat in the RMS 2017-18 against 229 lakh tonnes last year.
The stockiest and traders have also raised a huge stocks at lower rates. The farmers of Uttar Pradesh, Madhya Pradesh and Rajasthan are still holding a considerable stocks, hence, supply will remain plentiful at every rise in prices. Apart from this, imported wheat is still cheaper than domestic crop for port town mills.
Despite all discouraging fundamentals, the reasons that will prop up wheat market in coming days are as follows :
1. The major wheat markets of the country in Madhya Pradesh and Rajasthan witnessed thin business in the past month due to farmers' agitation and GST row. Hence, demand and supply will improve this month.
2. The schools are opening next week after summer vacation after which consumption demand for biscuits, breads and other products made of wheat will increase which will result in good demand from wheat from flour mills.
3.The hot and dry weather condition in the U.S. has boosted wheat prices in the global market as the U.S. department of Agriculture has pegged 40 percent of the spring wheat crop in good to excellent condition, down from the market expectations. Higher global prices of wheat will support domestic market.
4. If global wheat prices further rise, it will reduce India's wheat imports resulting in good demand from south India which will bolster domestic market.
5. FCI has kept reserve price for wheat to be offloaded through Open Market Sales Schemes (OMSS) at Rs. 1,790/100kg which is considerably higher than current market prices for mill qualityb wheat, hence it will boost spot prices.
6. The importers are seen reluctant to sign new contracts of wheat imports as they fear for losses if the government raises duty to restrict supplies of wheat from overseas.
Presently 10 percent duty is applied on imports of wheat.
Curren Market Prices :
Currently spot prices of mill quality of wheat are ruling in a range of Rs. 1,500-1,600/100kg in the primary agriculture markets where traders and brokers buy crop from farmers. The millers are procuring the same quality of wheat at Rs. Rs. 1,650-1,750/100kg from the traders and stockiest.
FCI Stocks : The stocks of wheat with FCI was 334 lakh tonnes as on June 1, 2017 against 296 lakh tonnes last year.
FCI Procurement : FCI and state agencies have procured nearly 308 lakh tonnes of wheat at Rs. 1,625/100kg in the marketing season 2017-18, Rs. 100 up from last year, directly from the farmers and the Food Corporation of India (FCI) has fixed base rate for open market sale at Rs. 1,790/100kg this year which was Rs. 1,640/100kg previous year. Last year the government agencies could procure only 229 lakh tonnes of wheat.
FCI Sales : FCI sold 77,000 tonnes of wheat through Open Market Sales Schemes (OMSS) last month in the non-procuring states. The agencies will start offloading wheat through OMSS in all states this month.
Import Viability
The port town millers and traders unlikely continue to source wheat from foreign origin if global prices further rise from current level which has already shot up considerably.
Currently the offer price of Ukraine origin wheat is around $217 a tonne (C&F) to Mumbai port. Including 10 percent import duty and port expenses of Rs. 1200/100kg, the cost of imported wheat reaching at Indian ports comes around Rs. 1,660-1,700/100kg.
Hence, imported wheat is currently cheaper for the port town millers in Tamilnadu, Karnataka and Kerala than domestic crop bought from the markets of Rajasthan, Uttar Pradesh and Madhya Pradesh which costs them at Rs. 1,950-2,000/100kg from Kota in Rajasthan to Bangalore in Karnataka for mill quality of wheat, said a Bundi based trader.
However, quality of grain sourced from Ukraine is weak and the millers need domestic crop for blending to improve the quality of their products.
Port town millers import better quality of grain from Australia but there is little chance of imports of Australian Premium wheat is offered at $275 a tonne (C&F) which costs at Rs. 2070/100kg including 10 percent duty and port expenses. While durum wheat, similar in quality, is sourced from Madhya Pradesh and Rajasthan at Rs. 2,100/100kg, so they will prefer domestic crop, said a trader in Madhya Pradesh.
Third Advance Estimates
The agriculture ministry has estimated wheat production all time high at 974.4 lakh tones in the third advance estimates. This year’s wheat production is higher by 1.66% than the previous record production of 958.5 lakh tonnes achieved during 2013-14.
Production of wheat during 2016-17 is also higher by 48.3 lakh tonnes (5.21%) than the average wheat production. The current year’s production is higher by 51.5 lakh tonnes (5.58%) as compared to wheat production of 922.9 lakh tonnes achieved during 2015-16.
As per the market estimates, total consumption demand for wheat would be around 960 lakh tonnes, total supply will be much higher as opening stocks were 80.59 lakh tonnes in buffer stocks as on April 1, 2017 against 115.4 lakh tonnes a corresponding year ago.
USDA Estimates :
The USDA has lowered India wheat production from 970 lakh tonnes to 960 lakh tonnes in its monthly reports released in June but kept imports prediction unchanged at 40 lakh tonnes.
As per the USDA estimates, the supply of wheat in India is much higher than its consumption demand,
Hence, upward movement in prices will be limited unless the government increases duty to restict import. But, one thing is clear that there is little possibility of more fall in prices from current level as neither traders and stockiest nor the government agencies will liquidate their stocks at lower rates. The farmers who didn't sell their crop to government agencies at Rs. 1,625/100kg (MSP) will not be ready to clear their stocks at lower rates.
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Particulars
|
2017-18 (P)
|
2016-17 (E)
|
|
Opening Stock
|
9.54
|
14.54
|
|
Production
|
96
|
87
|
|
Imports
|
4
|
5.9
|
|
Total Supply
|
109.54
|
107.44
|
|
Domestic Use
|
99
|
97.5
|
|
Export
|
0.5
|
0.4
|
|
Total Demand
|
99.5
|
97.9
|
|
Ending Stock
|
10.04
|
9.54
|
|
Figures In Million Metric Tons| E=Estimate | P = Projection
|
TECHNICAL VIEW: Wheat Delhi- Trend Still Down (Full Report)
(By Commoditiescontrol Bureau; +91-22-40015533)
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