Agri Business

Govt policy to set the trend for wheat prices this year

Vishwanath Kulkarni Bengaluru | Updated on February 15, 2018 Published on February 15, 2018

Poll politics: Both the Centre and State governments are going all out to ensure better realisations for wheat growers with elections coming up at many states this year

Bonus over MSP, potential hike in government buys, likely fall in output to influence prices

Bearish wheat prices may reverse the trend in the near-term as the governments — both Centre and States — go all out to ensure better realisation to the growers in the run-up to the elections later this year.

Declaration of bonus over the minimum support price by the key producing States, a potential increase in import duty and hike in procurement target coupled with lower-than-expected crop on account of decline in acreage could aid the price trend of the main rabi cereal.

Since early January, wheat prices have turned bearish as traders have been liquidating their stocks ahead of the harvest season.

Bonus over MSP

Madhya Pradesh has already announced a bonus of ₹200 per quintal over the Centre’s MSP of ₹1,735 and the expectation is that other States such as Rajasthan, Haryana and Uttar Pradesh may follow suit.

Bonus is expected to make wheat expensive for the millers. Immediately, the prices may not see a sharp increase as there are ample stocks, trade sources said. Further, the trade expectsthe government will increase the procurement target, while the Agriculture Ministry is in favour of increasing the import duty to curb the inflow of wheat during the harvest season.

In the Budget, Finance Minister Arun Jaitley said farmers would be paid an MSP of 50 per cent over the production costs.

The government has allocated an additional ₹30,000 crore in food subsidy for 2018-19, bulk of which is likely to be earmarked for procurement of foodgrains.

The government agencies procured 30.9 million tonnes (mt) of wheat during 2017-18 against the targeted 33 mt.

Bulk of the procurement was mainly from Punjab (11.7 mt),

Haryana (7.43 mt) and Madhya Pradesh (6.72 mt). In UP, the largest wheat producer, the government purchases stood at around 4 mt against targetted 8 mt.

Demand for quality produce

“There will be a scramble for good quality wheat such as Lokwan and Sharbati varieties this year,” a miller said, adding that the private buyers will be forced to compete with the government agencies.

Flour millers use the quality wheat from MP to blend it with other varieties.

Wheat harvest has already started in parts of MP and the southern millers have been contracting the new wheat at ₹2,150-60 levels from regions such as Mandsaur. The harvest is expected to gain pace in the coming weeks.

Dip in acreage

Wheat acreage has dropped to 30.42 million hectares in the current rabi season, about 4.27 per cent lower than last year’s 31.78 million ha.

This decline in acreage coupled with freak weather, as being witnessed in parts of MP and Maharashtra, may result in a lower wheat output, despite the Agriculture Ministry being optimistic about the crop pegging it at 100 mt. In MP, where the acreage is down by tenth as farmers shifted to gram, the wheat output is likely to be down by around 27 per cent to 15.9 mt.

Balance sheet

“We will be starting the year 2018-19 with a stock of around 12 million tonnes and the production is likely to be between 86 and 88 million tonnes,” said Amit Bharadwaj, CEO of Level A Commodities.

He said the lower crop is on account of drop in acreage and also due to unfavourable climatic conditions being witnessed in the main producing States.

“Looking at the scenario, we expect the situation to be tight this year,” he said.

India’s wheat output stood at 98.4 mt during 2017-18 and the imports during the year stood at around 1.7 mt — down from 5.5 mt the previous year.

Published on February 15, 2018

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