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Informist, Thursday, Feb. 6, 2025

 

By J. Navya Sruthi

 

MUMBAI - At a time when domestic wheat prices have started to correct amid the Food Corp. of India's decision to offload higher wheat quantities in weekly auctions, and prospects of larger output this year, the India Meteorological Department has predicted a warmer February, causing a change of view in some quarters. Though experts expect prices to remain rangebound with a downward bias over the short term, they are expected to rise to record-high levels in the long term.

 

After the weather agency's prediction led to a rebound in wheat prices, market participants and experts now see them in a range of INR 3,000-INR 3,200 per 100 kg in Delhi before the new crop arrivals start in March. The weather during February plays an important role in determining the price trend and production of the country's largest rabi crop.

 

Wheat prices started to fall towards the end of last month after hitting an all-time high in January. Prices of mill-quality wheat in Navi Mumbai's Vashi market have, so far, declined by INR 150 from an all-time high of INR 3,450 per 100 kg. Similarly, in the key market of Indore, Madhya Pradesh, prices fell by INR 210 from a record high of INR 3,300 per 100 kg hit in January. Wheat prices in Delhi--the country's benchmark market--fell last week to as low as INR 3,050 from an all-time high of INR 3,350 per 100 kg.

 

While prices have remained steady in Vashi and Indore markets, they started rising in the Delhi market this week. On Thursday, wheat prices rose by INR 10 to INR 3,100 per 100 kg in the Indore market. Prices in the Vashi market remained steady at INR 3,300 per 100 kg.

 

OPEN MARKET SALES

Typically, weekly wheat auctions start in July or August as procurement concludes by June. But this year, the government delayed it due to lower stocks with the FCI. Last year, the nodal procurement agency sold a record 9.4 million tonnes of wheat under the open market scheme.

 

After a long wait, the government on Nov. 28 allowed FCI to sell 2.5 million tonnes of wheat in 2024-25 (Apr-Mar) to millers and processors under the open market sales scheme. However, the market, at that time, wanted FCI to sell 4.5-5.0 million tonnes.

 

After selling 100,000-150,000 tonnes of wheat during weekly auctions from December, the FCI last week announced that it would now offload around 250,000 tonnes of wheat at every weekly auction till Mar. 31. As a result, it offered 250,000 tonnes of the grain in Wednesday's wheat auction and offloaded approximately 247,000 tonnes, an FCI official told Informist.

 

YIELD LOSSES

Above normal rainfall during the southwest monsoon proved to be a boon for both kharif and rabi crops. Staggered rainfall during this period also generally helps rabi crops by increasing soil moisture and replenishing reservoir levels.

 

Though market participants were positive about the wheat output till the end of January, they foresee a looming weather risk to the crop now. "If the weather continues to be hot, one can expect a 10-15% loss (in yields)," said Gaurav Kochar, a trader from Madhya Pradesh.

 

"Based on the current scenario, wheat production is estimated to be around 105-110 million tonnes for 2024-25 (Jul-Jun). However, if unfavourable weather conditions persist and lead to extended losses in yield, India may be compelled to resort to wheat imports this year to meet domestic demand," Kochar said.

 

G. Chandrashekhar, commodity market expert and policy commentator, said, "(I would assume) unfriendly weather will definitely affect yields. I would estimate wheat output at 100-102 million tonnes against the government's target of 115 million tonnes."

 

However, according to Deepak Pareek, founder of Global Grains and Pulses Council, output is most likely to be below 100 million tonnes this year. "There would be pressure. (Maybe) not immediately, but there'll be pressure on wheat prices by July-August," Pareek said. According to him, last year's wheat output was also around 98-100 million tonnes.

 

RECORD PRICE LOCKED

Wheat prices were at significantly high levels for 2022-23 (Apr-Mar) and 2023-24 (Apr-Mar) due to lower production on account of El Nino conditions. As a result, the government banned wheat exports in May 2022 to increase availability in domestic markets.

 

The government also tightened wheat stock holding norms for traders, millers, processors, and wholesalers to control prices. It also sold a record amount of the staple grain in the market, which led to a depletion of the government's wheat stocks.

 

In fact, last year, at one point, wheat stocks were also below the buffer norm, prompting the FCI to delay the sale of the grain during 2024-25 (Apr-Mar).

 

During the initial stage of the current Oct-Mar rabi season, the situation was different because of above-normal rainfall during the southwest monsoon, leading to estimates of higher wheat output. But now, with a hotter climate, the picture may turn out to be the same as last year.

 

"Till actual arrivals start (wheat prices will be) rebounding between INR 30-INR 33 per kg (INR 3,000-INR 3,300 per 100 kg) in Delhi," Pareek said. Rahul Chauhan, director of IGrain India, also expects wheat prices in Delhi to stay in the range of INR 3,000-INR 3,300 per 100 kg.

 

"During peak arrival season, typically towards the end of March and during April-May, wheat prices correct, and this time prices are likely to be around INR 2,600-INR 2,800 per 100 kg in Delhi and around INR 2,500 per 100 kg in other local markets," Pareek said. To be sure, these levels are still far above the minimum support price of INR 2,425 per 100 kg set by the government for the 2025-26 (Apr-Mar) period.

 

At this level, the government is unlikely to procure wheat from farmers at the minimum support price or even with a bonus of INR 125 per 100 kg announced in Rajasthan and Madhya Pradesh, experts said. This is also going to weigh on the government's wheat stocks and push up prices to near all-time-high levels before the next sowing season starts in October, they said.

 

"We may have the same situation as last year when wheat prices will shoot up to as much as INR 3,380 per 100 kg. This will keep repeating (as long as) the government does not look at wheat imports," Pareek said.

 

IMPORTS: AN ESSENTIAL

The government has managed without importing wheat for the last two years despite demands from the industry. Though wheat imports are not banned, a 40% duty is hefty enough to prevent private traders from buying wheat. But, this year, wheat imports are considered essential, market experts said.

 

"The government should start planning to import wheat. In fact, they should actually plan today to import at least 2 or 3 million tonnes to create buffer stocks. That is a part of the risk management policy," commodity expert Chandrashekhar said.

 

"For two years, the government did without importing wheat. We had very tight supplies and high prices then. Consumers paid a heavy price," Chandrashekhar said.

 

"The government (will) have to be very strategic if and when they decide to import wheat," Pareek said. "To create some buffers, government will have to import 4-6 million tonnes. But the timing is important to avoid putting too much pressure on global prices, which hurts us. August would be the correct time for the government to import wheat."

 

Currently, wheat prices in international markets are quite firm, so the government will have to import from Russia against rupee payment, Chandrashekhar said. So far, in February, wheat prices touched a four-month high of $5.84 per bushel (1 bushel = 27.2 kg) on the Chicago Board of Trade due to the ongoing trade war caused by US President Donald Trump's policies. At 1920 IST, the most-active March wheat contract on CBOT was up 0.35% at $5.74 per bushel.  End

 

US$1 = INR 87.57

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Nishant Maher

 

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