The bearish trend in global wheat prices, as reflected in the recent MMTC bids, may spell more trouble for the Government, which is struggling to handle the huge stocks with the Food Corporation of India.

Having already permitted 4.5 million tonnes (mt) to be shipped out of public godowns, the Government is aiming to allow exports of another 5 mt mainly through private trade with a view to creating storage space for new crop that starts arriving from April. This year’s wheat crop is estimated to be as large as last year’s record 95 mt.

But these plans may go haywire now with wheat prices in Chicago falling to a seven-month low on improved weather in wheat-growing areas of the US and marginal increase in Australia’s crop forecast.

The March contract on the Chicago Board of Trade dropped 9.5 cents or 1.3 per cent to $7.32 a bushel on Tuesday. Trade sources said the expectations of bumper harvest in India was also weighing on the global prices.

On Tuesday, MMTC received the highest bid of $305 a tonne from Glencore for export of 35,000 tonnes of wheat from the Karaikal port, while the lowest bid was $283 a tonne from Midgulf for the same. The latest bids are about 5 per cent lower than the highest price of $320 received by the PEC previously.

The Government currently has set a minimum export price (MEP) of $300 a tonne free-on-board (f.o.b.) for 2.5 m t wheat from the Central pool that’s being shipped out.

At current exchange rate, that works out to Rs 16,140 a tonne against the Centre’s minimum support price of Rs 13,500 a tonne for the new wheat crop.

Reducing the MEP could pose the risk of the wheat meant for exports finding its way back to the Food Corporation of India’s warehouses.

Already, an f.o.b. price of Rs 16,140 at the port translates into a rate of around Rs 14,600 a tonne in the hinterland, after accounting for handling and transport charges of Rs 1,500 a tonne.

“Madhya Pradesh announcing a bonus of Rs 1,500 a tonne over the Centre’s MSP of Rs 13,500 a tonne, makes the possibility of diversion to the domestic market all the more real,” sources pointed out.

At the same time, not reducing the MEP means buyers in the Far East and West Asia may switch over to supplies from Argentina.

The State trading entities have tendered around 3 mt of the approved 4.5 mt, while actual shipments are estimated at over 1.5 mt. The Government held a stock of some 30.81 mt as on February 1, close to thrice the buffer and strategic requirement norm.

(This article was published on February 13, 2013)
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