The Hindu Business Line : Centre counts on declining corn prices to rub off on wheat

Even as there is every possibility of bidders quoting upwards of $310 per tonne cost & freight in the State Trading Corporation of India’s (STC) latest 10 lakh tonne (lt) wheat import tender, the Centre is counting on the declining trend in international corn (maize) price to rub off on wheat.

“Yes, there has been a spurt in world wheat prices much beyond our expectations. But seeing the way corn prices have fallen, there is bound to be some adjustment in wheat as well,” a senior Food Ministry official told Busines s Line, while admitting, at the same time, that taking a call on whether to buy or not at the current rates is not going to be easy. “Going by the usual linkage of wheat prices with that of corn, we can expect a softening to take place. But if there is going to be independent speculative interest in wheat, this linkage may not work to our advantage,” he added.

Currently, soft red winter (SRW) wheat futures for September at the Chicago Board of Trade (CBOT) is ruling at about $6.2 per bushel, against $3.5 for the same month’s corn contract. The resulting spread of $2.7 per bushel is more than double the average difference of $1.3 per bushel in the past year. The only other time when the wheat premium over corn touched the present levels was in July 1996, when it crossed a record $ 2.9 per bushel (one bushel equals 27.216 kg).

Wheat prices are normally linked to corn via the feed grain route. In recent times, high petroleum prices have led to diversion of corn for manufacture of fuel ethanol. Lower availability of corn for feed has, in turn, generated higher demand for wheat as feed, pushing up its prices as well. With corn acreages sharply rising, a price correction of sorts has taken place over the last couple of months.

This has, however, not passed on to wheat. On the contrary, drought in Ukraine and southern Russia, combined with the US Department of Agriculture’s (USDA) projections of global stocks hitting a 30-year-low, have pushed up wheat prices to their highest since July 1996 (when they topped $7.5 a bushel).

Logically, a spread of $2.7 a bushel over corn would make wheat too costly for animal-feed use and, thereby, reduce demand and bring down prices. The problem though would arise if wheat emerges as an independently attractive investment option for funds, which will then drive up prices.

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