Wheat may trade steady to weak

Tight global sup­plies, good yield aid pos­i­tive sen­ti­ments; govt pro­cure­ment likely to re­strict ex­tent of price cor­rec­tion

The Hindu Business Line - - COMMODITY WISE - PRERNA SHARMA SINGH BLOOMBERG

The prospect of wheat largely de­pends on the ac­tions of the Cen­tre than the fun­da­men­tals. Wheat fu­tures prices had been trad­ing firm in the six months lead­ing to De­cem­ber 2018 — gain­ing as much as 22 per cent — helped by more-than-tar­geted pro­cure­ment and sup­port price hikes. Tight global sup­plies, es­pe­cially from top ex­port­ing coun­tries such as Rus­sia, aided the pos­i­tive sen­ti­ments.

In the near term, with ex­pec­ta­tion of bet­ter wheat crops due to cold win­ters and the ar­rival sea­son due in a cou­ple of months, the prices are likely to trade steady to down­side. How­ever, an­other round of record pro­cure­ment in the run-up to the 2019 Par­lia­men­tary elec­tion is likely to re­strict the ex­tent of price cor­rec­tion.

Bet­ter­ing sup­ply prospects

Till mid-De­cem­ber, weather con­di­tions were be­lieved to be un­favourable for the growth of wheat as In­dia re­ceived 9 per cent less than nor­mal mon­soon. As a re­sult, wheat out­put was ex­pected to fall to 91-92 mil­lion tonnes (MMT) in 201819 com­pared with 99.7 MMT in 2017-18 (as per the fourth of­fi­cial ad­vanced es­ti­mate re­leased on Au­gust 28, 2018).

How­ever, lower-than-nor­mal tem­per­a­tures in day and colder nights, cou­pled with clear skies, are ex­pected to negate the ef­fect of low soil mois­ture and boost the veg­e­ta­tive growth of wheat and en­hance the yield. Fur­ther­more, lower tem­per­a­ture helps re­tain soil mois­ture which could have been lost in case of a hot­ter win­ter.

Favourable weather and timely sow­ing of crop has in­creased the prob­a­bil­ity of a good har­vest in crop year 201819 (MY2019-20) de­spite a small re­duc­tion in acreage. The govern­ment has re­ported wheat sow­ing in 29.72 mil­lion hectares as of Fe­bru­ary 1, 2019, com­pared with 29.93 mil­lion hectares in the cor­re­spond­ing pe­riod last year. An in­crease in the sup­port prices by ₹105 per quin­tal to ₹1,840 per quin­tal for MY2018-19 by the Cen­tre in­flu­enced farm­ers to shift their acreage from pulses to wheat.

The crop con­di­tion is good in key wheat-pro­duc­ing States such as Pun­jab, Haryana, Ut­tar Pradesh, Mad­hya Pradesh and Ra­jasthan. Mar­ket ex­perts es­ti­mate that if the same cli­matic con­di­tions pre­vail, it will pre­vent the oc­cur­rence of yel­low rust dis­ease in North In­dia and the wheat crop may cross 100 MMT.

That is ex­pected to weaken the price in the com­ing months. Prices may even cor­rect to the level of the re­vised sup­port price, but it is un­likely to sus­tain be­low MSP as the Cen­tre would back it up with in­creased pro­cure­ment, keep­ing elec­toral cal­cu­la­tions in mind.

Govt hold on sup­ply

In an ef­fort to sup­port wheat prices that were fac­ing the pres­sure of ex­cess sup­plies due to good har­vest and to keep the farmer vote bank happy amid ma­jor State elec­tions, the Cen­tre pro­cured 35.5 MMT in MY2018-19, sur­pass­ing all pre­vi­ous highs of pro­cure­ment.

How­ever, abun­dant sup­plies with the Cen­tre will al­ways pose a threat to any un­ex­pected rise in wheat prices as they can sell wheat in large quan­ti­ties any time through open-mar­ket sale to rein in prices.

As of De­cem­ber 1, 2018, the Cen­tral pool holds 30.63 MMT of wheat stocks which is the high­est in the past four years and 41.4 per cent higher than the re­serves a year be­fore.

Out of the Cen­tre’s of­fer to sell 5.86 MMT of wheat since July un­til the fourth ten­der in Jan­uary, 5.82 MMT of wheat was sold. The govern­ment has set the sale price for wheat re­serves at ₹1,950 per quin­tal for the Jan­uary-March quar­ter.

Tight global sup­ply Out­look

2019 The world wheat mar­ket looks firm on lower pro­duc­tion from ma­jor pro­duc­ing re­gions. The In­ter­na­tional Grain Coun­cil ex­pects global pro­duc­tion at 737 MMT in the 2018-19 sea­son, down 4 per cent from 2017-18. The ex­pec­ta­tion of thin­ning sup­plies from the Black Sea re­gion and the weak­en­ing dol­lar have fur­ther in­creased the ex­port op­por­tu­ni­ties for US wheat sup­pli­ers, a pos­i­tive for CBOT fu­tures. The ex­pec­ta­tions of bet­ter out­put, con­ducive weather in ma­jor grow­ing re­gions and the fear of govern­ment re­leas­ing parts of its huge wheat re­serves are ex­pected to keep the tone of the mar­ket steady to low. How­ever, firm global cues and pro­cure­ment sup­port from the Cen­tre in an ef­fort to not let the prices slump be­low the MSP will keep the down­side lim­ited.

The writer is co-founder, Di­rec­tor, and Head of Agri­cul­ture,

Food and Re­tail at

In­do­nomics Con­sult­ing

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