Traders in a bind over buying wheat for exports

To buy or not to buy now — that is the tricky call for any trader eyeing opportunities to export wheat from India.

On paper, the scope to export exists, as the price of Indian wheat is quite competitive in today's world market.

Loose wheat is currently selling in markets such as Shahjahanpur and Hardoi in Uttar Pradesh at Rs 10,600-10,700 a tonne, below the minimum support price (MSP) of Rs 11,200.

Till around the second week of this month — when the news of the Centre paying a Rs 500 bonus over and above the MSP filtered in — open market prices hovered even lower at Rs 10,200-10,300 a tonne.

Even assuming a price of Rs 11,000 and 7-8 per cent incidentals ( mandi tax, labour, commission agent fee, gunny bags and transport to upcountry warehouse) on it would take the cost to roughly Rs 11,800 a quintal at the local despatch point.

To this, if one adds Rs 200 for loading into rail rakes and Rs 1,000 towards freight, the cost till the port would be about Rs 13,000 or $293 a tonne. After factoring in $10-12 of stevedoring (‘fobbing') expenses, the wheat can be exported at $305 a tonne, free-on-board. This is lower than the $320 a tonne for Australian soft wheat.

There is money, no doubt, to be made from exports, trade sources said.

Bullish Global signals

Moreover, the global signals on wheat are bullish, with exportable surpluses from the Black Sea region (Russia, Ukraine and Kazakhstan) constrained by last year's drought. There are dry-weather concerns even over the crop in the US, China and parts of Europe.

The uncertainty over global supplies is reflected in wheat prices at the Chicago Board of Trade. The May contract there, on Friday, closed at $7.99 a bushel. The subsequent quotes for July, September, December, March 2012 and May 2012 are ruling higher at $8.35, $8.75, $9.11, $9.38 and $9.54 a bushel, respectively. A bushel is 27.216 kg; and at $8.35 a bushel a tonne costs $307.

But for prospective exporters, the real uncertainty is whether the Centre would allow shipments in the first place.

While the Agriculture Minister, Mr Sharad Pawar, on Thursday, made a strong case for lifting the ban on exports, given the record harvest expected this year, his enthusiasm may not be as widely shared by others in the Government — especially the Finance Minister, Mr Pranab Mukherjee, and the Food Minister, Mr K.V. Thomas.

“After the bitter experience in sugar — where mills burnt their fingers from the Centre first allowing shipments and then not issuing the necessary notification — nobody wants to risk buying too much in the expectation that the export window will be opened up,” the source pointed out.

While the likes of Cargill and Louis Dreyfus have been purchasing wheat, the bulk of it is said to be for supplying to flour mills in the South and not for exports.

They have an arrangement to buy and warehouse wheat for 6-8 months on behalf of the mills. The mills are required to deposit 15-20 per cent of the value of the purchased stock, besides paying interest (at about 12.5 per cent) and warehousing charges to these big buyers, the sources added.

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