The Hindu Business Line : Limited trading gains dampen corporate wheat purchases

Few Takers
Trade booked losses after underestimating size of crop last year.
With signs of a bumper harvest, none prepared to take huge positions now.
Mandatory filing with Food Ministry too dampens corporate purchases.

Harish Damodaran

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New Delhi, May 17 Having burnt their fingers badly while trading in wheat last year, private corporates have cut back heavily on purchases this time round.

In the 2008-09 rabi marketing season (April-March), large multinationals and domestic companies have so far bought barely 3.4 lakh tonnes (lt), as against nearly 25 lt during 2007-08.

“Given that the bulk of this year’s wheat crop has already been harvested and brought to the mandis, we don’t expect total corporate buys to cross 5 lt, which is a fifth of what was mopped-up last year,” official sources told Business Line.

All the big players — from processors like ITC and Britannia Industries to ‘pure’ traders such as Cargill and AWB India — have reduced procurement by 80 to 90 per cent this year. Some — Parle Products, Delhi Flour Mills, Agricore (part of the Swiss commodity giant, Glencore) and the New Jersey-based Gharana Foods — have not reported a single grain of purchase, while Adani Enterprise and Sri Nangali Agro Tech (a flour miller from Punjab) have sourced small quantities.

Losses booked

“Last year, companies bought aggressively, anticipating that prices would shoot up the way they did in 2006-07. But that did not happen and they ended up booking losses on their stocks,” the sources pointed out. Wholesale wheat in Delhi surged by roughly Rs 350 a quintal during 2006-07, whereas they ruled virtually flat at Rs 1,050-1,100 a quintal throughout last year (even as globally prices more than doubled.).

The end-result: when the new season began, the corporates were already holding some 6.3 lt of stocks. “They underestimated the size of the crop last year. And with all evidence pointing to yet another bumper harvest, nobody was prepared to take huge positions this time,” the sources added.

There was, moreover, a second dampening factor. Last year, the Centre made it mandatory for corporates buying more than 50,000 tonnes to file returns with the Food Ministry on the quantities purchased and stocks held by them on a weekly basis.

For the current year, the buying threshold was reduced to 10,000 tonnes. Additionally, companies were asked to furnish details on the users for whom they were buying (including for own requirement) and also the quantities involved in case purchases were made for trading purposes.

In other words, there was simply ‘nothing in it’ for the trade to go long on wheat.

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