NEW DELHI (Commoditiescontrol) – Wheat prices are likely to remain under pressure in the domestic market this year due to ample supplies. Indian buyers are regularly sourcing wheat from overseas despite surplus domestic stocks. Most of the demand for wheat in the port town is met by imports, that’s the reason, prices are ruling almost steady in the markets of major wheat producing belts. However, local demand is expected to remain firm in the festive season that begins this month which may support prices in near term.
Spot Prices Rise
Wheat prices held nearly flat last week in the major domestic markets of north and central India despite weak demand from south Indian buyers and local millers as well. Prices of milling wheat eased Rs. 10/100kg in Rajasthan at the end of the week as south Indian buyers stayed away following the news of new contracts of wheat imports. Prices of mill quality of wheat ruled nearly Rs. 1,560-1,570/100kg in Rajasthan and Rs. 1,600-1,650/100kg in Madhya Pradesh. In Uttar Pradesh milling wheat held at Rs. 1,540-1,570/100kg last week.
NCDEX Wheat Falls
Wheat futures at National Commodity and Derivatives Exchange Ltd (NCDEX) fell sharply in the last week amid pressure of plentiful supplies. Wheat future for August delivery though settled one rupee up at Rs. 1,645/100kg at National Commodity and Derivatives Exchange Ltd (NCDEX) on Friday but the current month contract remained Rs. 29 or 1.73 percent down last week.
September wheat contract also settled Rs. 31 or 1.8 percent down at Rs. 1,667/100kg on Friday from the corresponding last week. As per the marketmen, wheat prices have come down in the domestic market on the reports of new contracts for imports of wheat from Ukraine.
Wheat Imports
Indian importers have bought 3 lakh tonnes of wheat from Ukraine for delivery in September and October. New contracts for wheat with 11.5 percent protein contents have been signed mostly at $215 a tonne.
Currently, rupee has been ruling nearly 64 against U.S. dollar. At this rate, the landing cost of Ukrainian wheat comes around Rs. 1,376/100kg With Rs. 137 as import duty, Rs. 150 port expenses and Rs. 100/100kg transport costs, the port town millers would receive imported wheat at Rs. cost Rs. 1,763/100kg. But, bilty rates for domestic wheat crop transported from north and central India, mostly from Rajasthan and Madhya Pradesh, to south India are at least Rs. 1,980/100k.
Hence, port town millers find wheat from Ukraine origin much cheaper than domestic crop.
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.
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 marketmen assume total consumption demand for wheat to remain around 960 lakh tonnes in 2017-18. Hence, total domestic 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. Apart from this, market analysts expect at least 30 lakh tonnes of wheat imports in the marketing season 2017-18. As per the markets sources, stocks of wheat imported in the previous season are still available at ports. Hence, stocks of wheat are likely to remain plentiful this year.
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) is offering huge quantity of wheat under Open Market Sales Schemes but bulk buyers have are not turning up due to its high reserve price. FCI has kept its base rate for wheat offered under OMSS in the marketing year 2017-18 at Rs. 1,790/100kg for the private bulk buyers and traders in Punjab, Haryana and Madhya Pradesh.
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.
The corporation could sell only 1300 tonnes of wheat to bulk consumers through OMSS in July.
FCI Stocks
Stocks of wheat recorded in central pool at 322.75 lakh tonnes on July 1, 2017. As per the buffer norms, the quantity of wheat in operational is at 245 lakh tonnes as on July 1 and the stock for strategic reserve is at 30 lakh tonnes. Hence, balance stock left in central pool for open market sales.
As per the FCI sources, the agency has to allot 248 lakh tonnes of wheat in different government schemes, hence, stocks are not too large to worry and domestic prices are already under control. The surplus stocks are only 53 lakh tonnes in the current marketing season.
Conclusion
Wheat prices are likely to rebound in the domestic markets as Ganesh Chaturthi festival is coming closer when consumption demand for mill products usually increases. On the other side, with rise in prices, supply will also increase, resulting in further pressure on the prices. Hence, wheat is expected to trade range bound this week.
(By Commoditiescontrol Bureau; +91-22-40015533)
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