Wheat prices to remain range-bound

Global or local production numbers have limited impact on domestic prices

India is heading towards its third consecutive record wheat harvest of around 100 million tonnes (MMT), for the production year 2018-19, helped by favourable weather. A continuous increase in the minimum support price (MSP) to ₹1,840 a quintal, announcement of bonus over and above the MSP by major producing States have influenced farmers to continue planting the crop.

This year, higher yields may even lead to wheat production surpassing last year’s record harvest of 99.7 MMT. But the government estimates it a little lower at 99.12 MMT for 2018-19, taking the total supply of wheat in the system to 112.35 MMT compared with 109.41 MMT in the previous year. However, the country needs 92-93 MMT for human consumption and another 5 MMT to be used as poultry feeds. That said, India will still have enough stocks to feed its mouths, but that will again depend on the quantity of stocks made available for the market as the government controls almost 40 per cent of the total wheat supply.

Keeping the parliamentary election of May 2019 in mind, the government — through its nodal agency for procurement (Food Corporation of India - FCI) — had procured 35.7 MMT of wheat in MY2018-19 (Marketing Year: April-March) and 34. 13 MMT in MY2019-20. As of July 1, the Central pool had 45.83 MMT of wheat stocks (the highest in recent years), against the strategic reserves requirement of 30 MMT.

The government has offered 21,97,850 tonnes of wheat through the open-market sale scheme (OMSS) till the issue of a third tender dated July 17, 2019, while the total quantity sold is 1,77,250 tonnes.

Most of the millers and bulk buyers have already bought as much as they could during the arrival season, due to which lower off-take was seen in the government’s open-market sale at a reserve price of ₹2,080 a quintal in the first quarter (April-June) of MY2019-20.

The FCI has planned to offload 10 MMT of wheat in open-market sale. Even after that, there will still be substantial stocks left with the FCI. That will preclude any scope of rise in wheat prices even if there is no real threat from imported wheat due to a hike in import duty to 40 per cent.

The duty hike in April from the earlier 30 per cent has constrained the inflows of wheat from outside. Restricted imports will shift the domestic demand from southern States towards the northern ones.

Despite lower output from Australia, Canada, the EU and Russia, global wheat production in MY2019-20 is likely to be slightly more than the global consumption demand. The International Grains Council estimates the global output to be 763 MMT for the ongoing year, 4 per cent higher than the previous year, against the consumption requirement of 755 MMT. The surplus is likely to end 2019-20 with 270 MMT of wheat stocks compared with 262 MMT a year before.

Outlook

In case of any shortage in the market leading to hardening of prices, the ample stocks with FCI, a bumper harvest and the likelihood of government resorting to open- market sale will keep domestic wheat prices in check.

The writer is co-founder, Director, and Head of Agriculture, Food and Retail at Indonomics Consulting

Published on August 11, 2019

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