The Hindu Business Line : Centre defends wheat import contracts

New Delhi, July 13 The Centre has defended its decision of July 10 to buy 5.11 lakh tonnes (lt) of wheat at an average price of $325.59 a tonne, after about a month ago it scrapped a negotiated deal of 3.06 lt at $263 a tonne.

The $263 per tonne rate for 3.06 lt was part of a 10 lt import tender that was floated on behalf of the Centre by the State Trading Corporation of India (STC) on April 30. This rate, which was negotiated by STC with a few international grain traders, was rejected as being too high by the Centre on May 29.

Softening Effect

The Food Ministry has, however, defended the cancellation of the deal by citing STC’s own position at that time. While recommending purchase of 3.06 lt at $263 a tonne cost & freight, the STC had said: “There are possibilities for softening of prices for arrival beyond August 2007 as compared to June-August prices received in the tender.

The Australian crop to be harvested during November-December 2007, which is reported to be good as per the International Grain Council’s report, may also have a softening effect of wheat prices.”

The IGC report of May 24 — which formed the basis of the Centre’s decision — had estimated global world output for 2007 at 623 million tonnes (mt) compared with last year’s 539 mt.

Further, wheat futures at the Chicago Board of Trade (CBOT) were ruling well below $5 a bushel or $180 a tonne even for December contracts.

On May 29, when the first tender was cancelled, there were “no indications towards any spurt in the near future” and the expectation was “of getting lower prices after the harvest in major wheat producing countries in July-August and November-December,” according to the Ministry.

World Production

The scenario, however, underwent a dramatic change after a report of the US Department of Agriculture on June 11, which downgraded the world production estimate to 610 mt.

Since then, world wheat prices as well as ocean freight rates have gone up considerably. “CBOT futures for September and December 2007 and March 2008 have shown a bullish trend, pointing towards higher prices in the international market in the months to come,” the Ministry has said, while trying to convey that the $325.59 a tonne price contracted for the latest tender is not very high in the new context.

“In the coming months, the Government would ask STC to float tenders for purchase of more wheat from the international market after taking into account the requirement, availability and price trends,” it added.

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