The Hindu Business Line : Demand slump subdues domestic wheat prices

Lower consumption
Wheat products market witnessing downtrend ever since Diwali.
Except in Bangalore, sales during Christmas elsewhere have been lukewarm.
Higher prices driving consumers away from wheat products.

M.R. Subramani

Chennai, Dec. 25 Domestic wheat prices are currently hovering around Rs 1,070 a quintal. In the last two months, the prices have increased by about Rs 75 a quintal. But they are much lower than the record rates witnessed in the country last year.

On November 13 last year, wheat dara prices zoomed to a record of Rs 1,172 a quintal. After that, prices have zig-zagged and, but for a single instance in February when they ruled at Rs 1,107, have seldom been above Rs 1,100.

In contrast, global prices zoomed to a record of over $10 a bushel last week and on Monday, it closed at $9.3525 a bushel (27.216 kg) or $343.63 a tonne (Rs 13,500). Last year, domestic prices were reported to be reflecting the trend of the futures on the Chicago Board of Trade, where it ruled around $5 a bushel or $184 a tonne (Rs 7,900).

Import prices

Even wheat contracted for imports by the Government agencies for buffer stocks have been at higher prices. In June, STC contracted to buy 5.11 lakh tonnes (lt) at an average price of $329.59 a tonne. Next time, contracts were signed for 7.95 lt at $389.45 a tonne. The third tender, floated by MMTC, saw contracts for 3.425 lt signed at $400.19 a tonne and the fourth tender witnessed PEC sign contracts to import 1.5 lt at $396.9 a tonne.

Last week, STC allowed a tender to import 3.5 lt to expire after it received quotes between $460 and $580 a tonne.

Different scenario

Why is the story different this year? “Because of demand slump,” says Mr Vinod Kapoor, Chariman, Wheat Products Promotion Society. “There has been no offtake in maida and demand from the biscuit sector is also less,” he says.

“The wheat products market has been witnessing a downtrend ever since Diwali. Except in Bangalore, sales during Christmas elsewhere have been lukewarm which is much against the general trend. We haven’t seen such a demand recession in the last 6-7 years,” says Mr M.V. Balasubramaniam of the Salem-based Narasu’s Roller Flour Mills.

“There is no demand for wheat flour but we are unable to comprehend the reason for it,” says Mr Pramod Kumar, Director of the Bangalore-based Sunil Agro Foods. He also heads the Karnataka Flour Mills Association. “What else is cheaper than wheat and biscuits?” he wonders.

Cheaper sugar

“When we are not able to zero in on the exact reason, the only explanation could be that price increase has driven away the consumers. That has led them to avoid wheat products. Today, the situation is such that sugar costs less than maida,” says Mr Balasubramaniam.

Currently, a kg of fair average quality maida costs Rs 14.50 in the South, while sugar is quoted around Rs 13.50 a kg. Sooji or rava costs Rs 19 a kg and resultant flour Rs 14.5 a kg. Resultant flour is got as a by-product from wheat along with maida, sooji and bran. On the other hand, flour made totally from wheat costs higher.

Prices remain stable

According to Mr Kumar, domestic prices are stable as buyers are stocked well and sellers are hard-pressed to dispose of their stocks. But Mr Kapoor says while buyers are adopting a “wait and watch attitude”, sellers are holding back their stocks. “Sellers have bought the wheat around Rs 750-850 a quintal and they know in another three months, no one will sell it below Rs 1,000 a quintal. I think that is a comfortable margin for them,” Mr Kapoor said. This is because the Centre has fixed the minimum support price (MSP) for wheat for the ensuing rabi marketing season at Rs 1,000 a quintal. However, Mr Kumar said sellers could end up losing if warehouse and interests costs are added.

Mr Balasubramaniam said prices have been stable generally owing to the Centre’s policy of importing wheat and not buying from the domestic market, where plenty of wheat is still available.

“To an extent, the Government’s policy of keeping the market open has paid dividends,” he said.

However, next year mills in the South will have to shell out a minimum Rs 1,400 a quintal for getting wheat at their doorstep. “With the MSP fixed at Rs 1,000 and a Rs 60/quintal premium for wheat in Madhya Pradesh, we will have to pay more,” says Mr Balasubramaniam.

Crop prospects

Meanwhile, weather for wheat crop in Punjab and Haryana is reported to be perfect. But, it is not cold enough in Rajasthan. The trader is keeping its fingers crossed with respect to the crop prospects, especially on reports of decline in area in Rajasthan, Madhya Pradesh and Uttar Pradesh. However, Mr Kapoor said there was no danger to the crop. Wheat production this year has been estimated at 74.89 million tonnes (mt) against 69.35 mt last year. The Centre is hopeful of meeting the production target of 75.5 mt next year despite problems being witnessed during sowing.

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