The Hindu Business Line : Uncertainty over Australian wheat crop size

India could be running the risk of a forced entry into the international wheat market at a time when global market conditions have begun to turn somewhat scary.

While the northern hemisphere wheat crop is shaping up reasonably well and crop conditions remain favourable, there is a trouble brewing in Australia.

Reports suggest that Australia is reeling under a severe drought and agricultural output may take a hit.

There is an acute water shortage, which can ease if, and only if, rains occur over the next 6-8 weeks, the government has warned.

In other words, there is uncertainty over the size of the Australian wheat crop due by October.

At 15-16 million tonnes (mt), Australia accounts for about 15 per cent of the global wheat exports.

Any setback to production and export supplies from the origin is sure to propel world wheat prices higher.

Last year — October 2006 — too drought affected the Australian wheat crop which declined by an alarming 60 per cent to a mere 10 mt (25 mt

previous year). A large opening stock (9.5 mt ) saved the situation. As a result, Australia's wheat exports plunged by a third to 10 mt (mt).

The ending stock for the current year is projected at a low 2.4 mt.

Domestic consumption requirements are an estimated 6.5-7.0 mt.

The global market is expected to take cognisance of the development soon.

A four per cent increase in wheat acreage for 2007-08 had so far kept the sentiment in check. Now, there is a strong likelihood that both cash and futures markets will firm up.

Australian wheat is already the highest priced in the world; and, therefore, other origins such as Canada will attempt to garner a larger share of the market that Australia may be forced to vacate.

For India, it would mean paying more for wheat. Current import prices are in the range of $225-240 a tonne cost and freight.

The market can potentially move up from these levels by 10-20 per cent depending on the severity of Australian situation.

The only silver lining is the firming rupee that may partially neutralise an imminent rise in international wheat prices.

Wheat procurement is going on much less-aggressively than the government would have many believe.

Open market prices too have not softened.

There may be no escape from importing 3 mt in the coming months.

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