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Informist, Tuesday, Aug 13, 2024

 

By J. Navya Sruthi

 

MUMBAI – The recent fall in wheat stocks with the Food Corp of India and uncertainty about the government's open market sales scheme have driven wheat prices higher across the key markets in India. Market participants expect wheat prices to rise further by 50–100 rupees per 100 kg due to firm demand ahead of festivals and lower supply of the grain.   

 

"At the beginning of the month, Delhi wheat was 2,690 rupees. In these 9 days, the price increased by 80 rupees per quintal (100 kg)," Rahul Chauhan, director, IGrain India, said in a note. The effect of rising wheat prices is also visible in maida and semolina, he said.

 

Wheat prices in Mumbai's Vashi mandi had risen by 100 rupees per 100 kg on Saturday to 2,850 rupees. "Prices rose due to uncertainty about the OMSS (open market sale scheme) and also festival demand," Devendra Vora, a wholesale broker said. Today, wheat prices were up by 50 rupees at 2,900 rupees per 100 kg, Vora said.

   

Wheat traders expect prices to rise by 50–100 rupees per 100 kg in the coming days due to rising demand ahead of festivals and lower supply. Prices of transportation and labour also increase in the festival season, adding to the prices, Vora said. 

 

On the supply side, arrivals usually fall during the monsoon, Aniket Mehta, a wheat trader in Rajasthan's Kota said. Arrivals fall during the rainy season as farmers are cautious about moisture in the grain and do not get the crop to mandis, Mehta said. The required moisture in the grain is 14%, but may rise due to rain. 

 

Aggravating the situation, the government's wheat stocks as of Aug 1 have fallen below the Jul-Sep buffer norms. Wheat stocks with the Centre were 26.8 mln tn as on Aug 1, nearly 3?low the buffer norm of 27.58 mln tn, according to the data from FCI. Wheat stocks were down 4.4% on year and 5% on month, according to the data.    

 

According to buffer norms, the minimum wheat stocks for Jul-Sep should be 27.58 mln tn, with operational stock at 24.58 mln tn and strategic reserve at 3 mln tn. The government sets the buffer requirement of food grains for every quarter, and the FCI has to maintain the mandated level.

 

In the last three seasons, wheat stocks with the government declined due to weak purchases of grain, Chauhan said. The government could not meet its wheat procurement target of 30-32 mln tn for the rabi marketing season 2024-25 (Apr-Mar). The procurement of wheat by the government ended on Jun 30. The Centre had managed to buy 26.60 mln tn wheat from the farmers, a bit above 26.20 mln tn last year.

 

The government's wheat purchases were lower in the major grain producing states this year. Wheat procurement in Punjab in the rabi marketing season fell to 12.5 mln tn, against the target of 13 mln tn due to an increase in competition from private buyers. Similarly, the government's wheat purchases also fell in Madhya Pradesh, one of the major producers, due to crop damage and unseasonal rainfall in the state.     

 

Lower wheat procurement and falling stocks with the Centre have delayed the commencement of open market sales by the government. Under the open market sales scheme, the government fixes the price of rice and wheat and sells them to bulk buyers such as states and private millers through electronic auctions. The government's weekly e-auctions of rice and wheat are to cool off retail prices across the country.

 

During 2023-24 (Apr-Mar), wheat sales under the open market scheme were at an all-time high of 9.4 mln tn. Last year, the reserve price for the fair and average quality of wheat was 2,150 rupees per 100 kg, and 2,125 rupees for the reduced specification quality wheat. 

 

For the current year, the government has set the reserve price of fair and average quality wheat at 2,325 rupees per 100 kg, according to a letter from the Ministry of Consumer Affairs, Food, and Public Distribution to FCI, reviewed by Informist. The price of wheat under reduced specifications was set at 2,300 rupees per 100 kg.

   

However, the government has so far not announced the date for starting the open market sales scheme. "We believe that looking at the current stock, (the) OMSS scheme is expected to come a month before Diwali," Chauhan said. The market will take note of this and wheat prices are likely to firm up, he said. 

 

However, the pressure of rising wheat prices may lead the government to start the open market sales scheme even sooner, Chauhan said. "... The government is keeping a close eye on wheat prices," he said.     

 

The government may also reduce the wheat stock limit on traders, Chauhan said, adding this would cap the upside in prices. The stock limit on wheat for wholesalers, retailers, and other trade entities is applicable till Mar 31, 2025, and was imposed on Jun 24.

 

Currently, the stock limit on wheat for wholesalers is 3,000 tn, while for retailers it is 10 tn. For big chain retailers, the stock limit is 10 tn per outlet and for processors it is 70% of their monthly installed capacity multiplied by the remaining months of the current fiscal. 

 

The government has in its third advance estimate pegged wheat output at 112.9 mln tn for 2023-24 (Jul-Jun). However, private agencies expect the production to be around 105-106 mln tn. 

 

Importantly, market participants do not expect the government to reduce or remove the import duty on wheat. The government is not likely to reduce import duty on wheat due to upcoming elections in Haryana and Maharashtra, Chauhan said. In June, the government also clarified that it is not going to alter the 40% import duty on wheat.  End

 

With input from Afra Abubacker

Edited by Deepshikha Bhardwaj

 

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