The Hindu Business Line : Surge in global prices may hit PEC wheat tender

Home Page - Wheat
Industry & Economy - Exports & Imports
Agri-Biz & Commodities - Commodity Markets
Surge in global prices may hit PEC wheat tender

Future contracts have gained $46 a tonne on CBOT

“In a market where the upside risks are higher, it makes sense to buy the maximum possible at the slightest instance of prices easing.”

Harish Damodaran

New Delhi, Nov 29 A surge in world wheat prices within the last 10 days is likely to impact bid quotes in PEC Ltd’s 3.50 lakh tonnes (lt) import tender, scheduled to open on Monday.

The benchmark March contract at the Chicago Board of Trade (CBOT) is currently trading at around $8.9 a bushel. While this is lower than the all-time-high of $9.62 a bushel reached on September 28, it is much more than the $7.65 level of November 19 – when bids were opened for yet another parastatal, MMTC’s 3.5 lt import tender.

Thus, in the last 10 days, CBOT wheat futures have gained some $1.25 a bushel or $46 a tonne (one bushel=27.216 kg). There is every possibility, then, of PEC’s tender attracting bids at rates significantly higher than the weighted average of $400.19 a tonne (cost & freight) contracted by MMTC for 3.42 lt in its tender, finalised last Friday.

Higher quotes

Since 2006, the Centre has contracted wheat imports of 71.48 lt through seven tenders floated by State Trading Corporation of India (STC) and the last one of MMTC. Each new tender has elicited higher quotes than the previous one in a highly volatile international market.

The weighted average price of $400.19 a tonne in the last tender was more than the $389.45 of the preceding one. But since the dollar fell from Rs 40.9 to Rs 39.6 between the finalisation of the two tenders, the effective import cost in rupee terms actually worked out marginally lower.

“On hindsight, it was a blunder not to have contracted larger quantities in the MMTC tender, especially when bids for over 10 lt were received against the tendered 3.5 lt. The emphasis, instead, was more on ensuring that all the three parastatals got equal opportunities to import. In a market where the upside risks are higher, it makes sense to buy the maximum possible at the slightest instance of prices easing,” trade sources pointed out.

Weather impact

Global wheat prices have been on a boil since last year, triggered initially by an unprecedented drought in Australia and then dry weather in Ukraine and southern Russia. Ukraine has since altogether banned shipments, while Russia has clamped a 40 per cent tax on exports.

The latest spike has come from Argentina announcing a suspension of fresh export registrations due to supply shortfalls feared from cold weather damage. Simultaneously, there is also speculation of the new crop in the US being hit by poor rains in the southern wheat belt of Texas and Oklahoma. Canada, too, has been continuously revising downwards the estimated size of its crop.

Interestingly, neither of the two successful bidders in the latest MMTC tender – Cargill and Glencore – have mentioned the origin from where they would be shipping out the wheat. “Going by their quotes, it appears they would be sourcing mainly from Argentina and Canada, and probably the old crop of Russia,” the sources added.

More Stories on : Wheat | Exports & Imports | Commodity Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page