More Stories

Informist, Tuesday, Dec. 24, 2024

 

By J. Navya Sruthi 

 

MUMBAI – After hitting record highs in 2024, prices of wheat and maize are seen continuing the uptrend in the new year amid rising demand and concerns around supply. Market participants, however, aren't as enthusiastic about rice due to a bumper kharif production and a slowdown in exports of non-basmati rice. 

 

Prices of wheat in benchmark mandis scaled new peaks this year, rising to INR 2,860 per 100 kg in Kota, Rajasthan, and INR 3,200 per 100 kg in Delhi due to continued shortage of the grain, even as low stocks with Food Corp. of India curbed its ability to influence prices. Similarly, maize prices in Karnataka's Davanagere rose to all-time highs of INR 2,850-INR 2,900 per 100 kg amid lower supply following erratic rainfall. In the kharif season last year, Karnataka witnessed drought conditions, which weighed on maize sowing and damaged around 80% of the crop. The state recorded 25?ficit rainfall during the southwest monsoon season last year. 

 

Additional demand from ethanol manufacturers only added to the supply pressure, as a substantial quantity of maize was diverted towards ethanol. In December 2023, the government had restricted sugar diversion for ethanol production at only 2 million tonnes, which made maize attractive in meeting the blending targets set by the government. 

 

According to government estimates, maize output in 2023-24 (Jul-Jun) stood at 37.7 million tonnes, 1% lower than the previous year. For 2024-25, the government has set a target of 40 million tonnes; production during this year's kharif season was 24.5 million tonnes, 10.4% higher than in the corresponding period last year. 

 

In the case of wheat, production was 110.6 million tonnes in 2022-23. For 2023-24, the government has pegged production at 113.3 million tonnes, though trade sources see it at only 100-105 million tonnes. For the current year, the government has set a production target of 115.3 million tonnes.

 

While the government had allowed the import of around 500,000 tonnes of maize under the tariff rate quota, it managed without importing wheat despite two consecutive years of low production. In June 2023, wheat stocks with the FCI fell to 29.9 million tonnes, the lowest since Jun. 1, 2008. 

 

The dwindling wheat stocks with the government were primarily due to low procurement by FCI, and record sales during 2023-24 (Apr-Mar) under the open market sales scheme and welfare programmes such as the free food grain scheme and Bharat atta. Against the wheat procurement target of 30-32 million tonnes for FY25, the government could buy only 26.60 million tonnes from farmers at a minimum support price of INR 2,275 per 100 kg, before procurement ended on Jun. 30. This was slightly more than the previous year's purchases of 26.20 million tonnes.

 

After a long wait, the government resumed its weekly wheat auctions under the open market sales scheme in December, but allowed FCI to sell only 2.5 million tonnes of the commodity by Mar. 31. The government's open market sales of wheat, which typically start in July or August, were delayed till December this year owing to lower government purchases. 

Prices of maize started to fall once new kharif crop arrivals started; currently, prices are at INR 2,000-INR 2,380 per 100 kg in Karnataka's Davanagere. But wheat prices remained high despite the government's weekly auctions and further tightening of stock holding limits for traders. Currently, prices of wheat are at INR 3,300 per 100 kg in Navi Mumbai's Vashi, and INR 2,860 per 100 kg in Kota. In Delhi, wheat is being sold at INR 3,075 per 100 kg. 

 

G. Chandrashekhar, commodity market expert and policy commentator, says one has to wait and see how production in the current season actually turns out. Wheat production is likely to be better only if the acreage is more than 30 million hectares and winter rain is sufficient, he adds. 

 

In the 2023-24 rabi season, the area under wheat was 31.83 million hectares, against the normal of 31.24 million hectares. However, more heatwave days affected crop yields. As of Dec. 16, the area under wheat was 29.31 million hectares, over 3% higher than a year ago.

 

Chandrashekhar says that currently, rainfall in key wheat producing areas is below normal, and terms the situation "scary". This is likely to keep wheat prices higher without any correction even after wheat arrivals start. But Chandrashekhar expects a correction in prices if the weather turns out to be supportive of the crop. 

 

A senior executive from a fast-moving consumer goods company told Informist that the government should announce wheat imports of 3-4 million tonnes at certain ports in south India. These imports would only act as a buffer against anything going wrong with the rabi wheat crop, but also stop millers in south and east India from buying aggressively once wheat arrivals start in domestic markets. The 40% duty on wheat imports is enough to dissuade even big traders, say experts.

 

The executive expects a correction in wheat prices in late March, but says the bias for prices is positive. Most traders also expect prices to remain at higher levels.

 

For exports of wheat, many say there is a long way to go. Rahul Chauhan, director at IGrain India, said, "We need at least two bumper crops for us to start exports."  

 

In May 2022, the government had announced a ban on wheat exports due to a smaller-than-expected harvest and rising food inflation. However, exports are allowed to some countries to meet their food security requirements, based on requests from their governments. 

 

Commenting on maize prices, Chandrashekhar says demand from the ethanol sector is likely to increase, which is likely to keep prices high. Trade experts also expect the government to announce imports under the tariff rate quota or to reduce the current import duty of 60%. Most of India's maize imports are from Myanmar and Ukraine. 

 

IGrain's Chauhan expects maize prices to rise to INR 2,900-INR 3,000 per 100 kg from current levels. "Decent winter rains will also support maize production in key producing states like Bihar and Uttar Pradesh," Chandrashekhar said.   

 

RICE RANGE-BOUND 

After allowing exports of non-basmati white rice at a minimum export price of $490 per tonne and reducing the export duty on parboiled rice from 20% to 10% in September, the Indian government removed these curbs in October. It also allowed duty-free exports of paddy and brown rice in October. 

 

The government also removed the minimum export price of $950 per tonne on basmati shipments. In August 2023, it had imposed a minimum export price of $1,200 per tonne to control illegal exports of non-basmati rice; this was cut to $950 per tonne in October 2023.

 

Removal of the curbs was driven by a bumper rice production in the kharif season this year, with the government's first advance estimate for 2024-25 (Jul-Jun) pegging production at a record high of 119.9 million tonnes. It was also driven by the need to clear stocks, as warehouses for the commodity were running full.

 

As of Oct. 1, rice stocks with the government were the highest since 2005 and up nearly 40% on year at 31.1 million tonnes. Latest data showed that rice stocks in the Centre's pool were up 52.3% on year at 28.03 million tonnes as of Dec. 1.    
 

Once the export curbs were lifted, prices of rice from other leading exporters such as Thailand, Pakistan, and Vietnam fell in October, according to the United Nations Food and Agriculture Organization. In November, the price of India's 25% broken rice was at $436.2 per tonne, against $477.3 per tonne the previous month, and that of the 5% broken variety was $452.2 per tonne, lower than $481.0 per tonne a month ago. 

 

Rice prices will remain influenced by international market trends, says Gaurav Kochar, a trader from Madhya Pradesh. "Currently, there is not much export demand due to the holiday season for most importers. Container prices are also high due to geopolitical tensions," said Devendra Vora, a trader at Vashi.  

 

India's rice exports are expected to reach 21-22 million tonnes this year, said Indrajit Paul, head of research at Agrocorp International. Before the ban on rice exports in 2022, India's shipments of the commodity were at 20.2 million tonnes. 

 

Traders expect prices of rice to remain range-bound in the near term and rise once export demand increases. Vora said exports would rise in mid-January, after the holiday season. Slowing domestic arrivals due to current prices may also lead to a potential increase in rice prices, Kochar said.  

 

"Rice is in a lot more comfortable position," Chandrashekhar says, adding that the government is likely to substitute wheat with rice in most of its welfare programmes. IGrain's Chauhan also expects the government to resume exports of non-basmati broken rice, which were banned in September 2022.  End

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000  

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.