India to gain from global wheat market rally

Wheat was the top gainer among commodities last week, rising five per cent, on Ukraine’s problem with neighbouring Russia and a report from the US Department of Agriculture projecting lower plantings and supply this year.

For Indian growers, this comes at an opportune time since the country can take advantage of the space left by these major exporting nations in the global market.

“There is a threat of sanctions against Russia over its standoff with Ukraine. It has created an uncertainty over supplies,” said TPS Narang, former Director of PEC and currently an analyst.

Ukraine is facing unrest after its President Viktor Yanukovych was toppled in February in an uprising. This was followed by Russia’s intervention in Crimea separating from Ukraine and Kiev threatening to take action against extremists, mainly pro-Russian supporters, leading to another tiff with Moscow.  

With the European Community and members of the North Atlantic Treaty Organisation hinting at sanctions against Russia for its confrontation with Ukraine, unrest is brewing in the former Soviet Union region.

Global projections Besides, the vagaries of weather in the US as well as the Commonwealth of Independent States Region are also likely to affect wheat supplies.

According to the US Department of Agriculture, wheat plantings this year are likely to be one per cent lower, while supplies are projected to be downby five million bushels at 118 million bushels. US ending stocks are seen lower by 135 million bushels at 583 million bushels.

But the main concern for the US is the drought in central and southern plans with conditions in Texas being poor. Overall, weather conditions are projected to be mixed for US wheat this year.

The department, however, estimates wheat prices to range between $6.75 and $6.95 a bushel against $7.77 this season ending June.

On Tuesday, wheat on the Chicago Board of Trade for delivery in July was quoted at $6.75 a bushel.

Indian wheat “India stands to benefit from these developments. Except India, no other country can supply during April-July,” said Narang.

Last week, South-East Asian sellers offered wheat at $313 (₹19,025) a tonne but buyers did not offer more than $290 (₹17,625). “Indian wheat is quoting at $280-281 (about ₹17,100) f.o.b. There is good acceptance of Indian wheat in South-East Asia and the Gulf for milling,” said Pramod Kumar, Director of Sunil Agro Mills in Karnataka.

Depending on exchange rate movement, wheat prices are quoted as high as $284 (₹17,300), said Narang.

“Actually, if the Government exports wheat, it can fetch higher prices. Currently, it is the private sector that is exporting the grain. And private exporters are trying to outwit one another, resulting in the advantage being lost,” he said.

Exports The Centre stopped exporting and also allocating wheat from buffer stocks since last month on fears that unseasonal rains in central and north-western parts could affect production.

According to Kumar, deals to export at least 10 lakh tonnes of wheat have been signed by private firms during March-April.

Trade sources said multinational firms such as Glencore, Cargill and Louis Dreyfus, besides domestic firm ITC, have struck deals. Wheat stocks are currently 17.8 million tonnes, higher than stipulated norms, while the Government plans to add another 31 million tonnes through procurement by its agencies.

"Basically, the government could be left holding 70 million tonnes of foodgrain. Therefore, it would be wise to allow exports instead of investing in stocking up wheat,” Narang said.

This has resulted in open market rates ruling higher than the minimum support price of ₹1,400 a quintal. Currently, quality arrivals in markets such as Etah in Uttar Pradesh are fetching ₹1,425.

On the NCDEX, wheat for delivery in July is quoting around ₹1,600.

“The problem with wheat now is high moisture, especially regarding crop in Punjab and Haryana. Therefore, most of the arrivals are fetching only around ₹1,400,” said Raj Narayan Gupta, a miller in Uttar Pradesh.

“The crop has been affected in Madhya Pradesh, Punjab and Haryana. We expect production to be lower than the Government’s estimate of 95.6 million tonnes,” said Gupta.

Last year’s production has been pegged at 93.51 million tonnes but the industry contends the estimate, saying it was lower.

“Gujarat crop was the first to arrive and most of it has been bought by exporters,” said Gupta. If the BJP comes to power, it could allow exports, said Narang. The USDA estimates Indian wheat exports to touch five million tonnes next season starting July.

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