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Informist, Friday, Oct. 4, 2024

 

By J. Navya Sruthi

 

MUMBAI – Apart from lower arrivals and firm festival season demand, the main factor behind the recent rise in prices of wheat is the government desisting from conducting sales under the open market sales scheme so far this year. This has led to a rise of 3-8% in prices in just over a month in key markets across the country. Most market participants expect wheat prices to stay firm this month, with some expecting prices to stay firm till the new crop arrivals after March.

 

As of Sept. 2, prices of mill-quality wheat in Rajasthan’s Kota were at INR 2,600–INR 2,625 per 100 kg. At the end of the month, prices were at INR 2,675–INR 2,700 per 100 kg, a rise of 3%. On Tuesday, wheat prices in the Kota market were steady at INR 2,700 per 100 kg.

 

In Mumbai’s Vashi market also, wheat prices have risen by 3% to INR 3,050 per 100 kg from INR 2,950 per 100 kg, according to data analysed by Informist. On Friday, wheat prices in Vashi were steady at INR 3,050 per 100 kg.

 

In Delhi, wheat prices rose nearly 8% to INR 3,040 per 100 kg on Sept. 30, from INR 2,820 per 100 kg on Sept. 2. Given the lower stocks with the government and firm demand in the market with Dussehra and Diwali round the corner, the government’s announcement about not conducting open market wheat sales this year has pushed prices close to the all-time high of INR 3,250 per 100 kg in key markets.

 

"High demand during the festival season and falling arrivals in the domestic markets will keep prices up," Devendra Vora, a wholesale trader, said. Wheat traders expect prices to rise by a further INR 150 to INR 200 per 100 kg in October.

 

In August, some media reports had suggested the government was likely to start open market sales of wheat from its buffer stock with the Food Corp. of India to bulk buyers such as flour millers in September. But in September, Food Secretary Sanjeev Chopra said there was no immediate plan to sell wheat under the open market sales scheme because of stability in wheat and wheat product prices. Following his comments, wheat prices rose in key markets.

 

However, uncertainty about open market wheat sales persists in the industry as Chopra did not rule out such sales in the future.

 

Wheat stocks with the government as of Sept. 1 were 3.3?low the buffer norm of 27.58 million tonnes. According to data from the FCI, there were only 25.1 million tonnes of wheat with the government, down 3.4% from 2023 and 6% lower than the previous month's stock.

 

On Thursday, Rahul Chauhan, director, IGrain India, said in a post on social media platform X that wheat stocks with the FCI as of Oct. 1 are estimated at 23.9 million tonnes, down 5% on month and nearly 1% lower on year. However, Chauhan’s estimate is above the buffer norm for Oct-Dec of 20.5 million tonnes.

 

According to buffer norms, the minimum wheat stock for Jul-Sept should be 27.58 million tonnes--operational stock of 24.58 million tonnes and strategic reserve of 3 million tonnes. Similarly, for Oct-Dec, the minimum wheat stock should be 20.5 million tonnes, in which 17.5 million tonnes is operational stock. The government sets the buffer requirement of food grains for every quarter, and the FCI has to maintain the mandated level.

 

The fall in wheat stocks is mainly due to lower procurement during Apr-Jun. The government could not meet its target of procuring 30-32 million tonnes for the rabi marketing season 2024-25 (Apr-Mar). Procurement of wheat ended on Jun. 30, with the Centre buying 26.60 million tonnes from farmers, slightly more than 26.20 million tonnes procured in 2023-24.

 

The condition was similar last year due to crop damage in the crop year 2022-23 (Jul-Jun). However, the government had enough buffer stock then to sell wheat under the open market sales scheme. It sold an all-time high quantity of 9.4 million tonnes during 2023-24 (Apr-Mar).

 

Besides the dwindling stock with the government, it had allocated 3.5 million tonnes of wheat to the free grain scheme called Pradhan Mantri Garib Kalyan Anna Yojana till March. Food Secretary Chopra in September said there is “ample wheat” in the country due to bumper production in the crop year 2023-24. The government in its final estimates for 2023-24, released Sept. 25, pegged wheat output at 113.3 million tonnes, slightly up from its third advance estimate of 112.9 million tonnes, and significantly higher than the industry’s estimate, which is between 100 million tonnes and 105 million tonnes.

 

WHAT NEXT?

With the government not conducting open market sales, there is no end to wheat traders’ euphoria. G. Chandrashekhar, commodity market expert and policy commentator, said the government has only one option right now to bring down consumer prices, which is to import wheat.

 

However, iGrain's Chauhan believes it is unlikely to happen. “(The) government may reduce stocking norms (further),” he said. In September, the government had tightened wheat stock-holding limits for traders, wholesalers, and processors in a bid to moderate prices.

 

The government reduced the stock limits for traders/wholesalers to 2,000 tonnes from 3,000 tonnes earlier and for processors to 60% of the monthly installed capacity multiplied by the remaining months in the current financial year ending March, an official release said. Earlier, the limit for processors was 70% of the monthly installed capacity multiplied by the remaining months of the year.

 

A few experts who spoke at The Wheat Summit on Sept. 17-18, said the government may further lower stock limits to 500 tonnes by February.  End

 

Edited by Rajeev Pai

 

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