Wheat Prices Unlikely To See More Upside Amid Plentiful Supplies

NEW DELHI (Commoditiescontrol) – Wheat prices stayed steady last week in the key Indian market amid average demand and supply but a little improvement is expected this week ahead of ensuing festive demand. However, it seems hard to see any big rally as plentiful domestic supplies will limit more upside in the prices. Apart from this, prices of wheat are also down in the international market following which market analysts anticipate good prospects of imports.

Spot Prices Rise
Wheat prices rose sharply in the spot markets during past one month as demand from flour mills remained firm. The average hike in milling wheat across the country was seen nearly Rs. 100/100kg despite regular supply.

Wheat prices were ruling nearly Rs. 1,500-1,550/100kg in the spot markets of Rajasthan and Madhya Pradesh at the end of June 2017. Gradually, prices rose in July on the supports of increased demand from flour mills and currently milling wheat is trading around Rs. 1,600-1,650/100kg in most of the benchmark primary agriculture produce markets in the country.

NCDEX Wheat Gains
Wheat futures at National Commodity and Derivatives Exchange Ltd (NCDEX) also gained during past one month. Wheat for delivery in August was at Rs. 1,627 on June 28 which rose to settle at Rs. 1,674/100kg on July 28, up Rs. 47/100kg.

Import Viability
At current global price level, Indian buyers are offered Ukrainian wheat at $215 a tonne (C&F). The C&F for Australian Soft wheat is at $252 a tonne and $265/270 per tonne for Australian Premium Wheat. The Indian currency is constantly strengthening against U.S. dollar making imports more viable.

The dollar settled at 64.16 against rupee today. At this rate, the port town millers will cost Rs. 1,677/100kg for Ukrainian wheat, Rs. 2,028/100kg for ASW and Rs. 2,120/100kg for APW (including 10 percent duty, imports expenses and transport costs).

On the other hand, the bilty rates for milling wheat from Rajasthan and Madhya Pradesh to Bangalore and Hyderabad are currently over Rs. 2,000/100kg while Durum and other better quality of grain cost them Rs. 2,150-2,250/100kg.

Hence, imported wheat is cheaper than domestic crop and that’s the reason, good outlook of wheat imports is seen presently.

Wheat Production
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.

Minimum Support Price : The government of India hiked minimum support price of wheat by Rs. 100 to Rs. 1,625/100kg in a bid to ensure fair and remunerative prices for the farmers.

Government Procurement
The Food Corporation of India (FCI) and state agencies procured 308 lakh tonnes of wheat in the RMS 2017-18 against the Centre’s target of 330 lakh tonnes for the RMS 2017-18, hence, the target remained underachieved but the quantity of wheat procured this year is much higher than last year when the government agencies could procure only 229.61 lakh tonnes.

Surplus Supply
With high production estimates, supply of wheat is estimated to remain in surplus as the market men assume total consumption demand for wheat to remain around 960 lakh tonnes in 2017-18. Hence, 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 kept its projection for India’s wheat output unchanged at 960 lakh tonnes in its monthly reports released in July. The US agency has also kept its prediction for India’s wheat imports unchanged at 40 lakh tonnes.

As per the USDA estimates also, 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 restrict import.

FCI’s Open Market Sales
The Food Corporation of India (FCI) could sell only 1300 tonnes of wheat to bulk consumers through Open Market Sales Schemes (OMSS) in July. As per the information given on the FCI’s website, the Corporation sold 32,850 tonnes of wheat in three tenders this month of which 31,550 to state governments and res 1,300 to bulk consumers while total quantity put on sale through e-auction was 35,61,562 tonnes in three tenders invited this month.

The agency has liquidated 1,47,850 tonnes of wheat under OMSS since June 2017 while total quantity offered was 15,31,512 tonnes.

The agency has fixed reserve prices for bulk sale of wheat under OMSS in the marketing year 2017-18 at Rs. 1,790/100kg for the private bulk buyers and traders. In the states of Punjab, Haryana and Madhya Pradesh, reserve price of wheat will be at Rs. 1,790/100kg. In the other states, railway freight ex Ludhiana to the nearest railhead and road transport cost from railhead to the depot where sale is undertaken, will be added to the reserve price.

Conclusion : The market prices of wheat are likely to gain during the peak festive season as FCI’s rate is high and strong demand will be seen at the time. But supply pressure will continue at every hike in the prices.

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