Wheat recovers on lower global output forecast

Wheat futures recovered 2.06 per cent so far this month of 3.18 per cent the commodity had lost in June on the National Commodities & Derivatives Exchange (NCDEX) in anticipation of an upsurge in export demand from production deficit countries.

The near month contract on the exchange platform was traded at Rs 1098.60 per quintal on Wednesday, a significant rise from Rs 1076.40 per quintal on June 30. The politically sensitive commodity was traded at Rs 1111.80 per quintal on June 1.

In spot market, however, price remained rangebound at Rs 1050 per quintal, Rs 30 lower than the state government announced rate at Rs 1080 per quintal. Vimal Sethi of Pooja Trading Corporation, an Amritsar-based grain trading firm, sees no major physical movement in Amritsar mandis.

Since, almost all export orders are tackled by the government run Food Corporation of India (FCI) which holds about 99 per cent of the country’s wheat stocks. According to data compiled by Rabo Bank, wheat stocks with Food Corporation of India (FCI) as of 1 July 2009 are 36 million tonnes as against the buffer norms of 17 million tonnes.

Due to the uncertain monsoon, the government is holding the stocks and not considering exporting them. If the monsoon is normal during July, wheat exports of around 5-6 million tonnes appear feasible based on the abundant stocks build up, a Rabo Bank report said.

The price rise is purely speculative in nature as neither export nor local demand supports the logic, said Sethi.
The government on July 4 lifted a 28-month ban on wheat export by allowing export of 900,000 tonnes of the grain by government-owned trading agencies. The ban was imposed in February 2007 as wheat procurement had declined and the country had to rely on costly imports.

According to an estimate by the Food and Agriculture Organisation (FAO) of the United Nation, which leads international efforts to defeat hunger, has forecast global wheat output to decline by 4 per cent to 655.8 million tonnes in 2009 compared with 684.6 million tonnes in the previous year.

FAO’s first forecast for wheat trade in 2009-10 stands at 114 million tonnes, down as much as 8 per cent, or 10 million tonnes from the estimated 2008-09 record volume.

The bank, however, apprehended that weather conditions in the northern hemisphere will dominate world wheat market focus over the coming months as harvest takes place. Planting in Argentina has been reported 50 per cent lower this season at 900,000 hectares (ha) due to low soil moisture level. Dry conditions over parts of Europe in recent months have resulted in production setbacks on earlier forecasts.

Strategie Grains, a global research agency, has trimmed their forecast of European soft wheat by 2.6 million tonnes in June to 126.3 million tonnes, a 9.8 per cent decline from the previous year.

Global wheat prices collapsed in June, with the major exchanges in Chicago and Paris shedding 21 per cent and 12 per cent respectively. Additionally, the threat of a strengthening El Nino weather pattern may impact Australian production and, hence, world net exportable surplus late in 2009.

While in previous seasons, the scenario created a bullish global price environment, in 2009-10 world wheat stocks are likely to increase for the second successive season, limiting the potential impact of an El Nino development this season.

In India too, despite exportable surpluses, the government is unlikely to allow agencies for excessive exports until sowing ensures bumper crop, as estimated, this season. Hence, Sethi wonders no major price fluctuation this year.