Wheat exporters concerned over delay in clearance of shipments with valid LCs

Subramani Ra Mancombu | | Updated on: Jun 28, 2022
Experts said that possibilities of cargo getting affected by monsoon is possible on the Eastern coast, but not in ports on the West coast like Kandla

Experts said that possibilities of cargo getting affected by monsoon is possible on the Eastern coast, but not in ports on the West coast like Kandla

Cargoes stored in warehouses on the East coast face threat from advancing monsoon

An “undue” delay in clearing wheat for exports from various ports across the country is causing concern to shippers, particularly with the monsoon beginning to gather momentum. At least 17 ships are waiting across various ports to load wheat consignments.

The problem is mainly with wheat stored in warehouses, mainly on the Eastern coast ports such as Visakhapatnam, Krishnapatnam and Kakinada. The consignments can set sail only after they are cleared by authorities and have an irrevocable letter of credits (LC) opened on or before May 13.

Lower production

The issue cropped up after the Centre banned wheat exports from May 13 after the foodgrain’s production dropped due to a heatwave that swept across the country during March and April and the Food Corporation of India (FCI) was able to procure less than 50 per cent of the 43.44 million tonnes (mt) of the cereal procured last year. 

Wheat production was initially estimated at a record 111.32 mt before the Centre lowered it to 106.41 mt. Last year, production was 109.7 mt. As a result, and also due to prices ruling above the minimum support (MSP) level of ₹2,015 a quintal, the FCI was able to procure only 19 mt of wheat this year. 

“Normally, wheat which arrives in April and May is stored for consumption for about 10 months. Therefore, stocks are maintained in a good condition. But possibilities of cargo getting affected by monsoon is possible on the Eastern coast, but not in Kandla or Mundra ports on the West coast,” said Rajesh Paharia Jain, a Delhi-based exporter.

16.45 lt with LCs cleared

Asked about the delay in clearing shipments for exports, a Commerce Ministry spokesman said 16.45 lakh tonnes of wheat with LCs had been cleared so far. 

Jain said ships waiting to load could carry a total of 7.67 lakh tonnes of wheat. At least seven of the waiting ships are to set sail to Indonesia, while another is headed to South Korea. If these shipments are cleared, then India would have permitted at least 3.03 mt of wheat exports after the ban was imposed. 

“Once LCs are issued, the Customs clearance will have to permit the ships to load. But the permission to load the ships is getting delayed,” said an exporter, who did not wish to be identified. 

Diversion to domestic market?

Such delays could lead to contractual disputes if the consignments are not delivered on time. “These are contracts that have to be delivered swiftly. Any delay, particularly in shipping, will lead to default. These are issues that cannot be put in black and white in the contract,” said VR Vidya Sagar, Director, Bulk Logix. 

“Though there is a delay in clearing shipments, there is no doubt that wheat that has headed to Kandla and Mundra will be exported. On the other hand, part of the wheat that has gone to Vishakhapatnam, Kakinada or any other port on the East coast could be sold in the domestic market, since wheat prices are expected to rise in the coming months,” Jain said. 

A New Delhi-based trade analyst pointed out how the Railways had cut the allocation of rakes for wheat exports from early May compared to what happened in April when the cereals exports were accorded priority. “The signal seems to be to slow down exports as much as possible,” said the analyst. 

Quality at stake

Sagar said it is not good for the wheat consignments to be locked inside bonded warehouses, awaiting clearance. “It will affect the quality of the wheat that is to be delivered. In particular, they will be prone to fungal attack and high moisture,” he said. 

The analyst said the Centre was keen to ensure ample supplies in the domestic market so that wheat prices would not surge and lead to concerns of inflation. “Even when the Centre banned wheat from May 13, the primary concern was soaring inflation, including the prices of wheat,” he said. 

Before wheat exports could be banned, the cereals prices had ruled over ₹2,300 a quintal, much above the MSP. After the ban, prices have dropped but they are still higher than the MSP. Currently, the weighted average modal price (the rate at which most trades take place) of wheat is ₹2,058.

Export demand

Wheat prices had surged before the ban mainly due to export demand, though damage to the crop due to the heatwave emerged later. The cereal exports had gathered pace since the Russia-Ukraine war as both these nations make up nearly 30 per cent of world trade. 

In particular, Indian wheat was seen as the replacement in South, South-East and West Asian nations as prices were competitive. India’s logistical advantage also played a role in export demand increasing. 

The demand in February and March helped wheat exports to rise to a record 7.23 mt in 2021-22. In April this year, wheat exports were 1.47 mt, nearly five times compared to April 2021.

Bangladesh, Nepal, Indonesia and Gulf countries turned into major buyers of Indian wheat. Egypt, a tough country to export wheat, had expressed interest to buy 0.5 mt of wheat but has now said it would settle with 0.15 mt.

While banning wheat exports, India said it would take care of the need of its neighbours and “vulnerable nations”. The Ukraine war, in particular, resulted in wheat prices topping $450 a tonne free-on-board in the global market, though Indian wheat prices ruled reasonable below $425 a tonne. 

Currently, benchmark wheat futures on the Chicago Board of Trade are ruling at a four-month low of $9.25 a bushel ($339.87 a tonne), down from $12.75 ($468.47/tonne) on May 17. Wheat prices are lower on rising supplies and slack export demand.

In the physical market, EU France grade wheat is quoted at $383 a tonne f.o.b., while US Hard Red Winter wheat at $418. Soft Red Winter wheat from the US is offered at $352, data from International Grains Council show. 

Published on June 28, 2022
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