India’s farmers holding wheat due to rising prices

India’s wheat production is estimated at 88 million tonnes, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Services (FAS) said in a June 30 report. Relatively lower government procurement and strong domestic prices have fueled speculation on the size of the Indian wheat crop, with the industry estimates currently ranging from 80 million tonnes to 85 million tonnes against the government’s third advance estimate of 94 million tonnes.

Due to the rising domestic prices, market sources report that farmers and local traders are holding larger than normal share of the crop expecting a further increase in prices. Meanwhile, the quality of wheat this year is reported better compared to previous years. Government procurement of wheat in the ongoing season has been severely curtailed compared to previous years on steadily rising domestic prices since the onset of harvest in March.

With open market prices well above the government procurement price, government wheat procurement is almost over in most of the wheat growing states. Total government procurement of wheat during 2016-17 is likely to reach 23 million tonnes, significantly lower than last year’s procurement of 28.1 million tonnes and the government’s initial target of 30.5 million tonnes.

Relatively low government procurement has brought down the government held wheat stocks significantly from previous year levels. The government wheat stocks on June 1 are officially estimated at 32.6 million tonnes, nearly 19% lower than last year and about 28% lower than the record stocks of 50.2 million tonnes in June 2012. However, current wheat stocks are sufficient to meet the government’s requirement for the next 10 months for the public distribution system (20 million tonnes) and minimum marketing buffer ending stocks (7.5 million tonnes) and a small surplus of 5 million tonnes for open market sales, if required. Besides, the government may release additional rice stocks for the public distribution system instead of wheat as the government has higher rice stocks.

Strong speculation on the size of current season wheat harvest has fueled domestic prices in the month of June, with the average wheat prices in most wheat producing states ranging from 15,100 rupee ($224.02) to 16,800 rupee per tonne well above the minimum support price (MSP). The government decision to indefinitely extend the 25% import duty on wheat from June 30 has further fueled domestic prices.

Market prices are likely to remain firm during July/August, but the later price movement will largely depend on government’s import policy decision. Market sources also expect wheat stocks held by the private trade to be released around the harvest of upcoming kharif crops from September 2016 onwards.

On June 17, the Indian government announced that the 25% import duty on wheat has been extended beyond the earlier deadline of June 30 till further notice from the government. Thus, the 25% import duty will be applicable till the time government notifies any change in the duty regime.

Market sources report that the private trade has contracted about 1 million tonnes of wheat for imports from July through October anticipating the 25% duty will be lowered or removed due to strong domestic prices. Most of the wheat has been contracted from Australia and France. However, actual imports against these contracts will depend on the domestic price movements and the applicable import duty during the contract delivery period. Assuming no significant change in the current forecast production, the report continues to estimate 2016-17 wheat imports at 2 million tonnes.

Source: World Grain. Date: July 7, 2016

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