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September and December wheat futures on the Chicago Board of Trade (CBOT), used as a reference rate in the global grains market, are currently ruling lower than the cereal’s price in India after dropping 6.5 per cent last week.
Domestic wheat prices are ruling near record highs even as global prices of the commodity are hovering near a 52-week low. Usually, Indian wheat is sold at a discount in the global wheat market, including CBOT wheat futures.
According to Ministry of Agriculture and Farmers Welfare data, the average weighted modal price (the rate at which most trades take place) was ₹22,840 a tonne on August 20.
On August 19, CBOT September futures ended at $7.55 a bushel (₹22,160 a tonne), while December futures closed at $7.72 (₹22,665). In the global spot market, wheat prices are near a year-low, though they are higher than the Indian rate.
2 reasons for global fall
According to the International Grains Council, Europe wheat (French grade) is $323 a tonne, while US Soft Red Winter wheat is quoted at $318 free-on-board.
“In India, wheat is currently available at ₹24,000-25,000 a tonne for fair average quality. Globally, prices are down since Russia has begun to sell wheat,” said Pramod Kumar, Vice-President, Roller Flour Mills Federation of India (RFMFI).
Two reasons are attributed to the fall in global wheat prices. The first reason is the UN-brokered deal on July 22 to allow exports of food commodities in the Black Sea region between Ukraine and Russia.
Over 5.6 lakh tonnes of grains have moved out since then, though wheat shipments are hardly 50,000 tonnes. At least 27 ships have left the region with another seven ships being loaded at three ports. “Black Sea region wheat is being offered at $385 a tonne cost and freight,” said Kumar.
Fears over recession
The second reason is the worldwide sell-off by speculators and funds wary of a global recession. According to Food Policy Research Institute, the sell-off is a cause for concern as it comes along with a drop in inventories.
“The fall in CBOT will not impact Indian wheat prices. We have to include freight and insurance. Also, if the Centre were to allow duty-free wheat how long will the window be open? It can allow such imports only for a limited period since the next year’s crop will be ready by then. At the most, this can give a limited period of a 50-day window,” said trade analyst S Chandrasekaran.
Following concerns raised by the RFMFI over rising wheat prices, Food Secretary Sudhanshu Pandey had said the Centre is considering all options - from lowering wheat import duty to zero from the current 40 per cent to imposing stock declaration orders.
Retail prices up 18% y-o-y
“Unfortunately, nothing has been done so far to control the prices, which are rising daily,” said RFMFI’s Kumar.
According to Consumer Affairs Ministry data, retail wheat prices are at a record high of ₹30.72 a kg and atta (wheat flour prices) are ruling at ₹35.24. Both prices are 18 per cent higher than the same period a year ago.
Wheat prices in the country have soared this year on lower-than-estimated production due to a heat wave sweeping the country during March-April and demand for exports at the beginning of the season after the Russian-Ukraine conflict escalated.
Initially, wheat production was estimated at 111. 31 mt before it was pruned to 106.34 mt. In its fourth advance estimate, the Agriculture Ministry raised the production a tad to 106.84 mt. The US Department of Agriculture has also raised the Indian wheat output estimate for this year to 104 mt this month against 99 mt last month. bids for tenders
Trade sources said they suspect the wheat production figures since the cereal was in short supply. “It could be lower than 100 mt,” a trader, who did not wish to be identified said.
Bids decline
“No wheat is available with farmers. Also, the Centre’s decision to replace wheat with rice in the Prime Minister Garib Kalyan Anna Yojana (PMGKAY) in some States is also putting pressure on the cereal,” said Kumar.
While Indian wheat prices are on the rise, bids in import tenders floated by some countries have begun to drop, said Rajesh Jain Paharia, a Delhi-based exporter. Last week, Jordan’s Ministry of Industry and Trade (MIT) decided to purchase 60,000 tonnes of wheat from US food major Cargill at $385.50 a tonne. The wheat will be delivered in the first half of February 2023, he said.
On July 26, MIT finalised another tender buying a similar amount of tender from Cargill at $405.75 to be shipped in the second half of December this year. During the same time, Bangladesh finalised a tender that closed on July 14 with the winning bid being $476.38 a tonne.
“If the current trend of global price drop continues, domestic wheat will be under pressure since imports will become viable then,” said Chandrasekaran.
Export demand
A section of the trade says domestic prices could decline the moment the Centre lowers the import duty.
The situation is in contrast to March-April this year when India was expected to export over 10 mt of wheat. Indian wheat was in demand in view of the Ukraine war but the unexpected drop in production resulted in the Centre banning the grain’s export from May 13.
By May 13, India had shipped out over 2 mt of wheat with 1.4 mt being exported in April. According to Agricultural and Processed Food Products Export Development Authority data, 3.33 mt of wheat were exported during April-June fetching ₹8,271.60 crore.
Though the Centre banned exports, it allowed shipments for which irrevocable letters of credit were opened before the ban was imposed.
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