The Hindu Business Line : Wheat prices: A calm before the storm?

ALTHOUGH in a state of fine balance now, the global wheat market is on the lookout for fresh leads for a direction to prices that have remained largely steady, despite speculative interventions from time to time.

Price levels in India and weather conditions in Australia are being keenly watched.

Breaking away from the persistent mismatch of recent years, world wheat production and consumption are likely to be well balanced in 2005-06 with stocks worldwide, especially with five major exporters, helping to rein-in any undue spurt.

Global wheat production in 2005-06 is forecast at 604 million tonnes (625 m.t.), according to the latest assessment of the London-based International Grains Council. Although down from the record output of the previous year, it would still be the second largest ever.

Consumption is estimated at 608 m.t. (612 m.t.), marginally higher than the production during the year.

The opening stocks for the year are placed at 137 m.t., of which stocks with the five major exporters are an estimated 51 m.t.

However, tight demand-supply fundamentals mean that the market would be vulnerable to supply disruptions, if any.

It is believed that in Australia, first dry conditions and the more recent floods may impact production. As for India, clearly, there are attempts by certain interests to `create' an atmosphere that would encourage imports.

It is of course common knowledge that commodity markets behave, not only on the basis of current fundamentals, but also on the basis of expected changes in demand and supply in the future.

Even as several corporates, including multinationals and speculators, are said to be holding `long' positions in wheat, the Indian grain market is agog with reports of imminent imports of at least one million tonnes.

Lobbying for reduction of customs duty on imported wheat has already begun. Flour mills in southern parts of the country have begun to demand direct wheat imports to keep their processing activity going.

A senior representative of a trading house told Business Line that offers from suppliers are being received at prices in the $150-160 a tonne range. However, without waiver of customs duty or at least a substantial reduction, actual imports may not be feasible. Those holding a long position are, quite obviously, keenly monitoring the unfolding situation and they would be quick to liquidate their position before the market corrects down, if and when imports materialise.

The Government is hoping that the kharif paddy crop would turn out to be normal so that pressure on wheat would reduce to an extent after September. Some analysts believe, wheat imports may not take place anytime soon, given the level of stocks with the Food Corporation of India.

After the initial brouhaha over rapidly rising wheat prices, there is a certain lull in the market, although there is lurking fear that it could be the `calm before a storm'. Wheat prices have not exactly run away in recent weeks - at the futures exchange the fine cereal is quoted at around Rs 800 a quintal.

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