Bumper output estimates pull down cereal prices in India

FAO food price index up on expected decline in global wheat output

As cereal prices slump in India on estimates of bumper production, the threat of adverse climatic conditions has pushed up their prices in global markets.

Prices of cereals, led by wheat, have reported up to 11 per cent declines in local markets since January. The government’s second advanced estimates a fortnight ago put India’s grain output at a record 271.98 million tonnes in 201617, up from 251.57 million tonnes in 2015-16.

According to the National Commodity and Derivatives Exchange (NCDEX), wheat prices in the Rajkot spot market have declined by 11.03 per cent since January to ~1,600 a quintal and barley prices in Delhi declined by 5.71 per cent to ~1,858.35 a quintal.

The Food and Agricultural Organisation (FAO) in its latest report forecast a 1.8 per cent decline in the global production of wheat at 744.5 million tonnes in 2017. The FAO forecast India’s wheat output in 2017 at 95.5 million tonnes, 3.5 per cent higher than the 92.3 million tonnes in 2016. The agriculture ministry estimates the country’s wheat output at 96.64 million tonnes in 201617, up from 92.29 million tonnes in 2015-16.

The decline in estimated global wheat output reflected on its prices. The near month delivery contract on the Chicago Board of Trade rose 7.7 per cent to $452.75 a bushel (of 27.2155 kg each) on March 2 from $420.50 early this year. Corn prices have also moved up by 6.2 per cent to trade at $379.50 a bushel on March 2.

The increase in wheat and corn prices have pushed the FAO Food Price Index up by 0.5 per cent in February to its highest value in almost two years. The FAO Cereal Price Index rose 2.5 per cent from January, led by increasing prices of wheat, maize and rice.

Use of wheat for human consumption is expected to rise by 1.1 per cent in 2017 and feed use by 6 per cent, according to the FAO. Worldwide wheat inventories are expected to rise by 6.6 per cent led by stock build-ups in Australia, China, Russia and the US.

The world trade in cereals in 2017 is forecast at 393 million tonnes, a slight drop from the previous year. The trade in coarse grains is expected to decline by 4.5 per cent as the trade in wheat is likely to increase by three per cent and that in rice by four per cent.