The Hindu Business Line : Wheat inflation

The article “The cause and effects of wheat inflation” (Business Line, December 11) captures quite lucidly the global as well domestic market phenomenon of price rise in recent months in commodities such as wheat. However, there are two issues I would not agree with.

First, the belief that private players are responsible for the price rise is misplaced. Private companies would always ensure that they manage to meet their requirements in the most efficient manner as possible and will never pay more than they have to, which will be dictated by the demand-supply situation.

Second, it would seem a bit exaggerated to attribute the incidence of price increase primarily to the speculative activity of investors in agricultural commodity markets when there is overwhelming evidence of an imbalance in the market fundamentals of wheat.

Wheat year-ending stocks, which are expected to fall to their lowest level in 30 years at the end of the marketing year May 2008, are a critical pointer of the adverse supply-demand conditions prevailing in the market.

It was also observed that on CBOT the peak open interest in 2007 was lower than that in the last two years, and would not have been the case had there been any unusual activity.

Reshma Rane e-mail

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