Govt scraps wheat tender on high prices

National Collateral Management Services had floated the call option tender late last week. Four global trading companies offered to supply 760,000 tonnes of wheat, with bids in the range of $415 - $506 a tonne, inclusive of $35 a tonne as premium.

Global wheat prices have now softened to less than $9 a bushel from a high of over $12 a bushel a few months ago on expectations of a larger crop this season.

Prices are expected to fall even further, as the wheat crop is seen higher year-on-year in key exporting countries such as Australia, Europe and Canada. The official said direct wheat imports by state governments may also work out cheaper for the Centre.

The government has already asked six states to import wheat directly to meet their requirements under the public distribution system (PDS) to ensure adequate supplies, crucial for maintaining price stability in an election year.

The official said good wheat procurement from Punjab and Haryana also led to the government decision of scrapping the latest call option tender.

According to latest data, Food Corporation of India, the designated state-owned food grain procurement agency, has procured about 6 million tonne wheat from Punjab and Haryana.

The government aims to procure about 15 million tonne wheat this year, as against 11.1 million tonne in 2007. Earlier this month, the government took a call option to buy 180,000 tonne wheat from Cargill at $406 a tonne. The option to buy wheat expires on July 15.

Call options give the government the time to decide if it wants physical delivery of wheat or not, depending on its procurement.

A call option gives the buyer the right but not the obligation to buy certain quantity of a product at a predetermined price within a limited period.