The Hindu Business Line : Volatile movement in pulses, wheat prices

The Centre's decision to introduce stock limits for wheat and pulses has led a roller-coaster movement in the prices of these commodities. Prices for these tended to decline initially but then increased at the beginning of the week. However, prices slipped again on Thursday.

In the case of wheat, according to trade sources, there were virtually no sellers when spot prices declined by Rs 20 a quintal on Monday. "It happened even last week as soon as Parliament passed the Essential Commodities (Amendment) Bill, 2005. No one wants to sell cheap when they see prices rising in the global market," the sources said.

The prices increased to Rs 995-1,000 on Tuesday before settling down at Rs 990-992 during the last two days.

Clamping stock limits

At a meeting with the Pulses Importers' Association on Monday, the Maharashtra Chief Minister, Mr Vilasrao Deshmukh, is reported to have said the State Government had not received any notification from the Centre with regard to clamping stock limits. Subsequently, the order has been passed. (See box)

"Wheat stocks are available but we have to push another 6-7 months before the next crop arrives in the market. That is another reason for those having stocks looking for higher quotes," said trade sources. "Spot prices are expected to firm up in view of various difficulties the trade will have to face due to the stock limits," they said.

In the futures market, wheat for September delivery have declined from Rs 978 a quintal on NCDEX on August 25 to Rs 952.60 on Tuesday before a zig-zag movement saw it closed at Rs 961 on Thursday. On MCX, the dip was to Rs 977.80 from Rs 993 but in between, it touched Rs 987.90.

FMC restrictions

"One reason for the futures price to decline is due to restrictions imposed by the Forward Markets Commission on open positions. It has said no one can have an open position of more than 50 contracts. So, we now see a situation where traders either selling the excess contracts they hold or buying to square off," the sources said.

However, the fall in futures has been prominent after August 25, when the Centre said it was clamping stock limits on wheat and pulses. The Forward Markets Commission, which supervises the functioning of the commodity exchanges in the country, came out with the regulations mainly since the futures of various agri-commodities began to rise and political parties began to blame futures trade for the increase.

Psychological impact

"There has been some psychological impact. But we will have to see how the actual implementation of the order will be. It will be for the State Governments to fix the stock ceiling and implement the order. We don't expect the State Government to really crackdown," said a North India-based flour miller.

States in South India are unlikely to bring in stock limits in view of the fact that both pulses and wheat are imported from West and North India.

Importers game

A Mumbai-based trader, who did not wish to be identified, said importers would begin to call shots with regard to prices. "Its importers game now as they will hold stocks and fix prices, particularly for pulses," he said.

Since August 25, urad (black matpe), chana (gram) and tur futures and yellow peas futures have also witnessed volatile movements with yellow peas dipping on Thursday after witnessing a rise during the beginning of the week. (See Table) Spot prices for pulses, on the other hand, have been ruling firm.

"Though chana futures have declined, the fact is that the country is short of chana. We feel chana could top Rs 3,000 a quintal from the current Rs 2,400-2,500 before December. Yellow peas are also seen ruling firm in view of dry weather in the US," the trader said.

The US grows a significant quantity of green and yellow peas and currently its production is feared to be affected by the dry weather.

Limited stocks

Meanwhile, corporates producing food products do not expect any problem from the stock limit order. "We have very limited stocks with us. We don't see any problem from the order," said Mr S. Sivakumar, Chief Executive - Agri-Business, ITC Ltd. Production was lower in the case of wheat and its availability was a problem, he said.

While wheat production has been pegged at 69.48 million tonnes against initial estimates of 75.5 mt, there has also been corresponding shortfall in pulses production. Also, bufferstock of wheat has declined forcing the Centre to look at imports, ban exports and come up with other measures to curb rise in prices.

More Stories on : Agricultural Policy | Pulses | Wheat

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