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Informist, Wednesday, Jan. 15, 2025

 

By Taniva Singha Roy

 

MUMBAI – Wheat prices in the domestic market are at an all-time high and are likely to increase significantly further as the government is stringent at releasing stocks at open market sales. Prices are likely to increase by another INR 150-INR 200 per 100 kg in the next one month and remain at elevated levels until arrivals of new crops start in March, said market participants.

 

On Wednesday, the all-India average wholesale price of wheat was INR 2,950.6 per 100 kg. Prices in the domestic market have shot up over the last few weeks due to anticipation of lower production, lower release of stocks by the government and looming risks of rising temperatures during the next eight weeks which might affect crops, said G. Chandrashekhar, a commodity expert and policy commentator.

 

Stocks of wheat with the Food Corp. of India were lower in December, while demand was high, as during winter months, consumption of wheat increases. Due to firm demand and lower release of stocks at the open market sales, the government is selling wheat to the highest bidders at INR 2,900, said Aniket Mehta, a trader from Kota, Rajasthan.

 

The Food Cor. of India has procured 26.6 million tonnes of wheat during the current rabi marketing season 2024-25 (Apr-Mar), surpassing last year's figure of 26.2 million tonnes.

 

Wheat stocks were down on month in January by 10.7% to 18.6 million tonnes from 20.6 million tonnes in December, according to FCI data as of Jan. 1. Stocks in January were, however, up 12.6% from a year ago, according to FCI.

 

Food Corp. of India has sold 495,000 tonnes of wheat so far in 2024-25 (Apr-Mar) under the open market sales scheme, according to FCI data. The corporation sold wheat at an average rate of INR 2,938.5 per 100 kg, against INR 2,811.2 at the previous week's auction on Jan. 1, data showed.

 

The all-India average wholesale price was INR 2,950.6 per 100 kg, as of Wednesday, up 6.7% on year amid tight supply in the market. Wheat supply in the market is tight as FCI delayed offloading the grain from its godowns amid lower procurement and falling stocks. The corporation typically begins wheat auctions in July or August, but in 2024-25, FCI began weekly auctions only in December.

 

Since December, FCI has been releasing nearly 100,00 tonnes wheat every Wednesday to check wheat prices. The government has allowed FCI to sell 2.5 million tonnes wheat till March-end. However, the market wants FCI to sell 4.5-5.0 million tonnes. Last year, FCI sold a record 9.4 million tonnes of wheat under the open market scheme.

 

Production of wheat was down in 2023-24 and if it falls even during the current season, the prices will rise again in August, after dipping momentarily post new arrivals in March, said Devendra Vora, a trader from Vashi. Current wheat prices in Vashi were INR 3,500, up from INR 3,300 in November, said Vora.

 

Amid high demand and supply crunch, the government is also exporting wheat to a few countries such as Nepal, which might add on to the supply tightness, said traders. The government had put restrictions on the export of wheat in May 2022 as part of its measures to control rising domestic prices. However, the shipments of the grain through diplomatic channels continued.

 

The government is supplying wheat to a few countries like Nepal and Bhutan through a government-to-government trade arrangement. However, a few traders and experts believe that the government-to-government exports are unlikely to add to the supply crunch as the quantity is minimal of 50,000 tonnes or 100,000 tonnes. 

 

Market participants and experts are of the view that India might be forced to import wheat if production is not as expected. Last year, the area under wheat was at 34 million hectares, and as per the latest sowing data from the farm ministry, the area sown under wheat, the main rabi crop, was up 1.4% on year at 32.0 million hectares. If production is not as expected at 115 million tonnes, imports are inevitable, traders said. 

 

There is a crisis, so the prices may rise, but if the government increases the quantity in the open market sales, then prices may fall, said Mehta.

 

Wheat demand is increasing and so is the demand for alternatives such as maize, but prices of maize are way less at INR 2,400 per 100 kg. Production area has risen, if production is good then it will weigh on prices, Vora said.

 

The government has not taken any action as yet to reduce prices as farmers are showing some interest in sowing wheat, as prices are higher, said Vora. Wheat production has been lower as farmers were shifting to lucrative crops such as jeera and methi, which is why the production fell in the past two to three years, he added.

 

IMPORT REQUIREMENT

Although some market participants believe that import is inevitable if production is not as expected and insufficient to meet the rising domestic demand, others are of the view that import at the moment is not advisable.

 

It takes time for the government to come to a decision for an import consignment, said Vora. If the government calls for import of wheat now, it will only reach the country in March, when new crops will also arrive in the market, and this could be a loss to the farmers if there are ample stocks in the market during that time, he added.

 

"I strongly feel the wheat market fundamentals are tightening. We have lower production, definitely far lower than what the government numbers suggest," said Chandrashekhar. Lower production, lower procurement, high prices, and falling public stocks--these make for a dangerous combination, he added.

 

We have somehow managed to tide over the situation without importing in the last two years, as New Delhi is reluctant to permit imports, said Chandrashekhar. "I think we should adopt one of the three proposals--imports on a government-to-government basis or a reduction of 40% duty to allow private trade to import or to buy a call option on the Chicago Board of Trade for two to three million tonnes--to import wheat. This is to help contain wheat prices and augment wheat supplies within our country," Chandrashekhar said.

 

When new arrivals start, that is when prices will drop. This time, arrival is seen coming later than usual. New crops come in the market during mid-February but this time it will arrive by end of February or March beginning, due to a delay in harvest, said Vora.

 

Looming risk of rising temperatures during the next eight weeks will lead to a fall in production. About 115 million tonnes is the target, our actual production is unlikely to be anywhere near the target, production will be short by 10% which is 10-11 million tonnes, said Chandrashekar.

 

The government, in the last few years, have been overstating the production numbers, as indicated by stock positions with the FCI. Moreover, there are stringent stock limits for traders due to lower availability. The actual production will be 100 million tonnes-104 million tonnes. Market has taken note of tightening demand supply fundamental and weather related concerns, he added.

 

End of March, mid-April there will be a cooling of prices because of new arrivals, but again after August, prices will rise, if production is well below the target, Chandrashekhar said.  End

 

Edited by Akul Nishant Akhoury

 

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