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Informist, Saturday, Nov. 30, 2024

 

By J. Navya Sruthi

 

MUMBAI – After keeping the market on tenterhooks for a while, the government this week announced the sale of wheat under its open market sales scheme. However, having waited for the announcement for the past few months, the market participants felt disappointed at the quantum cleared for the electronic auctions till Mar. 31. The quantity allocated would not be sufficient to meet the demand, which would likely push prices higher, they said.

 

Thursday, the government allowed the Food Corp of India to sell 2.5 million tonnes of wheat under the open market sales scheme for the rest of 2024-25 (Apr-Mar), which ends on Mar. 31. The government has set the reserve price of fair and average quality wheat at INR 2,325 per 100 kg, and the price of wheat under reduced specifications at INR 2,300 per 100 kg. 

 

Typically, FCI starts wheat auctions in July or August. However, this year the government delayed open market sales of wheat owing to reduced procurement in Apr-Jun and the resultant lower stocks at the Centre's pool. It could not meet the target of procuring 30-32 million tonnes for the last rabi marketing season. Procurement of wheat ended Jun. 30, with the Centre buying 26.6 million tonnes from farmers, slightly more than 26.2 million tonnes procured in 2023-24, but far lower than its own target.  

 

Due to lower procurement, wheat stocks in September with FCI fell below 27.58 million tonnes (operational stock of 24.58 million tonnes and strategic reserve of 3 million tonnes), which is the buffer norm for Jul-Sept. The data from the nodal food procurement agency showed that wheat stocks as of Sept. 1 with the government were 25.1 million tonnes, nearly 9?low the buffer norm, also down 3.4% on year and over 6% lower than previous month's stocks.

 

However, as of Nov. 1, wheat stocks with the agency were 2% higher on year at 22.3 million tonnes, though they were down 6.4% from a month ago. The on-year rise was the first in the last 11 months. As per the buffer norms, the minimum wheat stocks for Oct-Dec should be 20.52 million tonnes--operational stock of 17.52 million tonnes and strategic reserve of 3 million tonnes. 

 

HIGH PRICES: END OR NO END?

Despite a correction in wheat prices in the immediate follow up of Thursday’s announcement, market participants and experts see no end to firm wheat prices, at least till the next crop arrivals, which is only after March. The 2.5 million tonnes of wheat allocated for the open market sales scheme would not meet the firm demand in the domestic market, Rahul Chauhan, director of IGrain India said.  

 

"There is high competition in the domestic market for wheat, amid firm demand as the availability of wheat is very low," Chauhan said, adding that stockists are also not ready to sell, as they expect prices to rise further. Following the government's move, there is likely to be a correction of INR 50-150 per 100 kg, but prices would recover to INR 3,100-3,200 per 100 kg level in Delhi, he said.   

 

Ajay Goyal, managing director of Shivaji Roller Flour Mills Ltd, said prices are likely to remain range bound with a marginal negative impact in the near term. He expects prices of Delhi wheat to remain at INR 3,000-3,100 per 100 kg. 

 

Following the government's announcement on Thursday, prices of mill quality wheat fell to INR 2,700-2,725 per 100 kg from INR 2,775 per 100 kg Friday in the key benchmark market Kota in Rajasthan, Aniket Mehta, a local trader said. Similarly, prices of the same variety of wheat in Delhi fell to INR 3,050 per 100 kg from INR 3,125 per 100 kg the previous day. 

 

Earlier this month, prices of mill quality wheat in Delhi rose to INR 3,200 per 100 kg from INR 3,100 in October due to firm festival demand, lower arrivals in the domestic market, and lack of government sales. However, prices fell to INR 3,025 per 100 kg on Tuesday as the market anticipated the government's open market sales to start in December.

 

WHAT NEXT?

Market participants expect the government may further tighten the holding stocks to increase supply in the market, so that prices see a correction. Experts believe that the government may come up with another tranche of open market sales in February to increase supply and restrict the upside in prices. 

 

With 22.3 million tonnes of wheat with the FCI as of Nov. 1, and 2.5 million tonnes for the open market sales scheme, the government has enough stocks left to come up with another tranche of open market sales before the next crop arrives, G. Chandrashekhar, commodity market expert and policy commentator, said. The correct time for the government to come up with the next tranche is in February, when it gets an idea about the wheat sowing in the country, he observed.

 

Also, the government will need only eight million tonnes of wheat for the welfare schemes from November till March, which leaves around 11 million tonnes of wheat with the government at the end of the year, Chandrashekhar said.

 

However, Goyal of Shivaji Roller Flour Mills Ltd. said the government may further tighten the stock holding norms to control prices. IGrain's Chauhan also said the government may consider reducing the current stock limits sometime in December or January after getting an idea about the wheat sowing.

 

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.

 

Devendra Vora, a local wholesale dealer at Vashi market in Navi Mumbai, presented a different angle. He said the government wants wheat prices to remain high so that more farmers sow wheat in this rabi season. He also said there is no need to panic as the private trade has 9.5 million tonnes of wheat, which will keep prices range-bound at higher levels. End

 

Edited by Deepshikha Bhardwaj

 

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