The Hindu Business Line : Rebound seen in global wheat output

The emerging global wheat situation has begun to engage the attention of user industries, trading houses and investors. Tactical investors reportedly made huge profits in recent months following tight supplies and firming prices.

With supplies and disappearance numbers for 2006-07 already known, market fundamentals for the next season are generating a lot of interest among stakeholders. The good news is that, on current reckoning, world wheat output in 2007-08 is likely to rebound by at least 5 per cent from 590 million tonnes of the current year.

Crop conditions remain mostly favourable in the northern hemisphere. Also, there is strong expectation that production will bounce back in Australia, which suffered a reverse in 2006. The outlook is for a marked recovery in production, according to London-based International Grains Council (IGC), whose first assessment shows an increase of 34 million tonnes (mt) to 624 mt, the second largest in recent years.

Yet, with consumption too set to rise to 622 mt (607 mt) and global stocks at one of the lowest levels (117 mt), supplies will continue to remain historically tight, IGC said.

International trading houses are, however, betting on a slight softening of export prices from major origins; and that may be good news for India. In 2006-07, wheat market had gained nearly 20 per cent as a result of falling inventory, tightening supplies and rising corn prices that lifted the grains complex.

With market fundamentals for next season still tightly balanced, the role of funds would become important. Recently, funds had exited the market by liquidating their long positions. Whether they would return remains to be seen. When and in what strength investor interest would be revived depends on crop progress over the next few months.

World wheat trade next year is projected to remain nearly unchanged at 107 mt with increase in feed wheat imports offset by decline in milling wheat. Import needs of India and Brazil are likely to be smaller than in 2006-07, but there could be some recovery in imports by non-producing developing countries, IGC pointed out.

As far as India is concerned, the impression that the country cannot do without import of at least 3 mt in the second half of the year is gaining ground. Given the current crop prospects, sharp hike in procurement rate and price performance of last season, there is nothing to suggest that wheat prices would remain subdued. If anything, wheat prices have an upside potential.

New Delhi is truly in a fix as it has already taken all action that it possibly could to rein in prices.

The policy environment is becoming complex with compulsion to meet the conflicting interests of producers and consumers.

The next 4-6 weeks are crucial from the procurement point of view. It is unclear if the government has a fall back position in the event its projections go awry.