The Hindu Business Line : World wheat output seen lower in 2009

Mumbai, Nov. 30 Low world wheat prices – currently quoting around $200 a tonne or even less – are expected to affect planting for 2009. Much of the reduction is likely to happen in the developed countries where there usually is a supply response to prices. Current world wheat prices are half of the average price that prevailed during the second half of 2007 and early part of 2008.

The total output in 2008 expanded by a record 10 per cent or 63 million tonnes (mt) to 673 mt, resulting in huge surplus and rising stocks.

LOW OUTPUT

Now, low prices are likely to hurt output next season. Falling wheat prices and high input costs will affect plantings in major producing countries, and disappointed with returns from their 2008 harvest, some farmers will turn to other crops, the UK-based International Grains Council (IGC) remarked in its latest report adding the total harvested area is forecast to fall by 1.6 per cent to 221.7 million hectares.

RETURN FROM CROPS

It is well known, in countries such as the US, crops compete for acreage. Growers’ expectation of returns from crops will determine the crop to be planted or the area to be allotted for planting.

PRICES MAY CLIMB

In other words, global wheat prices may currently be at the bottom, and may soon begin to climb up when prospects for 2009 begin to become clear.

However, even if the acreage reduction does take place as currently forecast, world wheat output would still be higher than consumption requirement; and given the projected higher closing stock of 150 mt prices may not spin out of control as happened in 2007 and early 2008.

PLANTINGS APACE

Wheat plantings in India are currently going on apace. The normal area under the fine cereal is 26 million hectares and the yield slightly below 3 tonnes a hectare.

WEATHER THREAT

A big threat to wheat is weather. Indian wheat is at the limit of heat tolerance.

Even a one per cent rise in average temperature during the growing period can potentially reduce yields.

Importantly, barring Punjab, wheat-growing States such as Rajasthan and Madhya Pradesh have slightly less-than-adequate soil moisture. Precipitation during January will help.

PROCUREMENT PRICE

Large buffer stocks with the government should help fight price rise.

However, it is important to liquidate additional stocks the government is carrying because of the huge financial implication.

Nearly half the acreage has already been planted.

New Delhi, however, is yet to announce the procurement price, proving yet again that the government is not at all serious in using minimum support price / procurement price as an instrument to guide growers.