Brisk buying by traders pushes up wheat prices

Private traders are buying and stocking up large quantities of wheat, the winter staple, anticipating strong export demand, pushing up domestic prices and slowing down the government’s own purchases at federally fixed minimum support prices.

India’s wheat-harvest season is underway. Some analysts now say the country needs to be cautious with exports because of a smaller than previously predicted wheat crop this year, lest abundance should turn into a supply crunch in the coming months. Average wheat prices were up 14% year on year in March 2022 on the back of anticipated exports, since traders are offering higher prices than the government.

India, the world’s second-largest grower of the staple, wants to fill a large gap in global wheat supplies caused by the Ukraine war, as it is one of the few countries to hold surplus stocks. Official forecasts in February pointed to another bumper harvest at 111 million tonne, up from 109.59 million tonne last year.

However, a prolonged spell of hot weather in March has cut yields across major wheat growing regions, threatening to upend India’s export ambitions.

The government’s procurement between April 1-25 is down 38% compared to the same period last year, prompting worries if it will be able to meet its procurement target of 44 million tonne. Analysts say the government will fall short of this target. Government stocks are important to stave off food inflation.

To be sure, the government’s opening stocks of wheat on April 1 were 19 million tonne against a buffer (strategic reserves) stock requirement of 7 million tonne.

According to official data, the government bought 13.6 million tonne of wheat from its procurement centres in 11 states between April 1-24, 2022. In comparison, the government procured 22 million tonne in the corresponding period last year. The government buys grains at federally fixed floor rates, known as minimum support prices, to supply subsidised food to nearly 800 million beneficiaries under the National Food Security Act and also maintain a strategic reserve to mitigate any food crisis.

The procurement slowdown is the result of higher than MSP rates being offered by private traders. “Private traders are offering ₹300-400 more than the MSP rate of ₹2,015,” said Sandip Tomar, a wheat trader in Madhya Pradesh’s Sehore wholesale market. By how much production will fall is as yet unclear, analysts say. Punjab has so far completed 1,200 crop-cutting experiments — a scientific process to determine yield loss.

In the MP’S Sangrur, a top wheat grower, yields have fallen by 11 quintals to stand at 41.66 quintals a hectare, HT reported on Wednesday. According to the state’s chief agriculture officer, Jaswinder Singh Grewal, this is the steepest decline ever. “The buffer stock is different for different times of the year. I think the government shouldn’t allow exports beyond 6-8 million tonne so that domestic prices don’t shoot up,” said Ashok Agrawal, an analyst with Comtrade, a commodity trading firm.