FY23 wheat stock may be robust despite exports, free grain scheme extension

However, traders say if free foodgrains scheme goes beyond September and there is another Covid wave that requires more relief, then the closing stock position could turn precarious

The surge in wheat exports from India amid  the Russia-Ukraine crisis has raised concerns in some quarters about the status of wheat stocks in the central pool if procurement in FY23 falls sharply below the target.

However, several experts and market watchers say that most of these fears are unfounded, because even in a worst-case scenario, the total wheat inventory in the Central pool by the end of FY23 will be more than the mandated quantity of 7.5 million tonnes.

In the case of rice there is no such problem, as the Centre has ample stocks in its warehouses. This is also probably why the government might consider allocating more rice than wheat in its latest expansion of the Pradhan Mantri Garib Kalyan Ann Yojana (PMGAY), announced last week for six more months, starting April 1, 2023.

However, traders say if the free foodgrains scheme has to extend beyond September 2022 and there is another Covid wave that requires more relief, then the closing stock position at least for wheat could turn precarious.

In the current demand and supply scenario there is no such fear.

The wheat procurement target

The Centre has fixed a target of procuring a record 44.4 million tonnes of wheat from farmers in FY23, which is 2.44 per cent beyond the purchases made during the current season, an official statement had said a few months back.

Of this, Punjab will contribute the maximum, at 13.2 million tonnes, followed by Madhya Pradesh (12.8 million tonnes) and Haryana (8.5 million tonnes). Wheat output in the 2022-23 marketing season is projected at a record 111.32 million tonnes, up 1.58 per cent from last year.

Closing stocks

Decoding the math, a trader at a global commodities firm says even if the closing stock of wheat in 2021-22 is 19.5-20 million tonnes as on March 31, 2022--the lowest in three years--it will still be significantly higher than the normative inventory of 7.5 million tonnes required for maintaining buffer and strategic reserves.

On top of this, if the procurement is 34-35 million tonnes, against the target of 44.4 million tonnes, it will mean that available wheat supplies this year will be about 55 million tonnes.

Of this, some 24-25 million tonnes will go towards normal public distribution system requirements, while sales through open-market schemes and other avenues could be 7-8 million tonnes.

“Open-market offtake will be good this time, because the price at which the government is selling is about Rs 2,150 a quintal while the same wheat in the market is priced at almost Rs 2,400,” says a wheat trader.

Now, if distribution under PMGKAY is 6-7 million tonnes in the next six months (though the Centre has allocated 24.4 million tonnes of wheat and rice in this round of free food grain distribution starting from April 1, 2022--most agree that share of wheat in this will be less than 10 million tonnes to manage the stocks), it will mean that the closing stocks of wheat on March 31, 2023, could be about 15 million tonnes, he adds.

This, he says, will be again be lower than this year’s stock, but nearly twice the required quantity of 7.5 million tonnes.

However, the situation could get complex if wheat procurement in FY23 drops by a sharper-than-projected 8-9 million tonnes, as this will mean that the closing stocks will fall further in FY23.

Now let's suppose wheat procurement is just about 30 million tonnes in FY23, or almost 15 million tonnes lower than the targeted 44.4 million tonnes. In such a scenario, the drawdown will be sharper and closing stocks at the end of the next fiscal could be just around 7.5 million tonnes.

“If this happens, the government might even look to curb exports,” says the trader quoted earlier.

The next few months will clarify which of the scenarios plays out.

On the production front, India’s wheat harvest is projected to be a record 111 million tonnes-plus in FY23 (April-March), which is almost 2 nillion tonnes beyond this year’s output.

Healthy exports

Concerns about closing wheat stocks have arisen due to a sudden spurt in export demand for Indian grain, which could derail the annual procurement that starts on April 1. This is because farmers will look to sell to private traders at rates that are higher than those from state agencies at the mandated price of Rs 2,015 per quintal.

Indian wheat prices have shot up in the world markets because of the Ukraine crisis, which in turn has pulled up domestic prices by Rs 200-300 above the MSP of Rs 2,015 per quintal (the price at which the government buys). 

In FY23, India's wheat exports could reach a new milestone of 10-12 million tonnes if the current Russia-Ukraine Crisis lingers on and needless curbs on outbound shipments aren’t imposed.

India is poised to export a record 7.5-8 million tonnes of wheat in the current fiscal that ends on Thursday. Before the Russian conflict, it had already shipped 6.6 million tonnes in the first 11 months of FY22.

Prices of Indian wheat in the world markets had shot up to around $360 per tonne (FOB) a few days back in the aftermath of the crisis, cooling down a bit to $330-340 per tonne during the past few days.

The current price of Indian wheat is still the cheapest among all global competitors and the absence of Ukraine and Russia from the world markets for the next few months will give Indian traders a golden chance to ship record quantities.

The Wheat Balance Sheet

Opening Stocks (FY23): 19.5-20 million tonnes

Projected procurement (FY23): 34-35 million tonnes

Total available wheat (FY23): 55 million tonnes (approx)

(Less) sale through regular PDS: 24-25 million tonnes (approx)

(Less) sale through OMSS: 7-8 million tonnes

(Less) sale through free scheme: 6-7 million tonnes

Estimated Closing Stocks (FY23): 15 million tonnes

Source: Traders and market watchers