Govt support sows hope for wheat

Prerna Sharma Singh | Updated on August 26, 2018

Prices have risen by more than 15 per cent since May to ₹1,985/quintal

Wheat spot prices have started to strengthen over the past two-and-a-half months after trading below its minimum support price of ₹1,735 per quintal often.

Adequate stocks and comfortable arrivals, which kept the prices under pressure till April 2018, was overridden by favourable government policies and anticipated reduction in global supply. This led to prices rising by more than 15 per cent after May, to ₹1,985 now.

The good days of wheat are likely to continue, on the expectation of continuing government support in the run-up to crucial State and national elections and depleting global stocks.

Squeezed supplies

After achieving a record harvest of 98.5 million tonnes (MT) in MY2017-18, the wheat output is expected to be lower at 93-95 MT, say most market analysts. However, despite lower acreage, the government seems optimistic and has given the preliminary estimate of output at 97 MT as of February 28.

The wheat planting in central and western States has been affected as farmers have switched to less irrigation-intensive pulses, leading to a drop of 4 per cent in wheat acreage.

With weak domestic prices, good arrivals and the Centre trying to win back angry farmers before the polls , government has purchased roughly 40 per cent of the country’s total wheat output in MY2018-19. .

A perceived shortage of the commodity in the domestic market — due to excessive public procurement and a 10 per cent hike in import duty to 30 per cent in May 2018 (aimed to check cheaper import) — has been troubling private buyers and pushing up prices. Despite tighter supplies, India’s wheat consumption demand is estimated to be stable around 92-93 MT. Increased demand from South India post the import duty hike will add to the existing demand.

Market analysts believe more than 50 per cent of what is procured this year will be kept lying in the open — prone to damage by rodents, pest, insects and rains. If that happens, wheat prices may rally once more .

However, the pace of release of 7-8 MT of wheat stocks at a price of ₹1,890(₹100 higher than last year) — which is on the cards — will determine the extent of correction in the market prices.

On top of everything, the government will try its best to keep the market supply tight so as to not let the prices fall much — at least until the general election is over.

Global factors

The expectations of one of the lowest wheat productions in the EU since 2012-13 — due to continued drought and higher-than-normal temperatures in the northern Europe and the Baltic — has made USDA lower the global production forecast of wheat in 2018-19 by 7.5 MT to 729.6 MT in its August estimates.

As a result, global wheat output is likely to be down 4 per cent leading to the stocks decreasing by another 14 MT by the end of 2018-19.

The supply concerns, especially in the top exporting countries, provide room for the wheat prices to go up globally.

Price outlook

Higher import duty, reduced supplies, crop damage concerns in storage, increased purchases by flour mills and the government’s intent to keep growers happy by ensuring better price realisation, are expected to support prices. However, an intermediate correction cannot be ruled out.

The writer is Vice-President and Head of Agriculture, Food, and Retail, Indianomics Consulting.

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Published on August 26, 2018
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