Wheat procurement: FCI may see stiff competition from private traders

While procurement is scheduled to start in Punjab and Haryana on April 1, arrivals of early-sowing varieties have softened prices

As was the case last year, government wheat procurement agencies, led by the Food Corporation of India (FCI), are likely to face stiff competition from private traders this year, too.

While procurement is scheduled to commence in Punjab and Haryana on April 1, arrivals of early-sowing varieties have softened prices. In Madhya Pradesh, procurement has begun on March 25. The Union ministry of consumer affairs, after a meeting with state food secretaries on March 17, decided to set a procurement target of 31 million tonnes (mt) for this season.

On condition of anonymity, a trader said due to a fool-proof procurement system in major  producing states such as Punjab and Haryana, private traders might not find much room there. They would purchase most of the commodity from Uttar Pradesh, followed by Bihar, West Bengal and Gujarat.

For this season, the minimum support price (MSP) has been determined at Rs 1,400 a quintal by the Commission for Agricultural Costs and Prices. Uttar Pradesh is lucrative for private traders, as the price is below the MSP due to inadequate procurement infrastructure. In Gujarat and Maharashtra, private participation is likely to be significant, as exporters have booked forward contracts for wheat. An Ahmedabad-based wheat broker said traders in that city were receiving Rs 1,660 a quintal for exports to Singapore, while the price in the domestic market was Rs 1,675 a quintal. Due to a slowdown in the movement of cement from Gandhidham, the number of trucks had been affected and this had increased freight costs. The trader added with an improvement in arrivals, the traders would try to meet export commitments.

Private traders might get some wheat on premium prices, as rains in Madhya Pradesh might affect the quality of grain in a few parts. The Rs 150/quintal bonus on wheat in the state might not leave much room for private traders.

In the major wheat procurement states of Punjab, Haryana and Madhya Pradesh, inclement weather might hit procurement. For 2013-14, procurement stood at 25.09 mt.

In the second week of March, wheat prices rose to Rs 1,700/quintal, as the government had stopped tenders under the open market sales scheme. The price has now fallen to Rs 1,650 a quintal in north Indian states. Traders are expecting prices of Rs 1,520-1,550 a quintal in New Delhi in the second and third week of April.

Since wheat millers don’t have a pipeline of stocks, aggressive buying from private players is expected, with more price corrections in the coming week.

With the weather playing truant in the North, arrivals in Punjab and Haryana are expected to be delayed by a week to 10 days. Despite the demand from private traders, farmers in these states prefer to sell at the MSP, owing to a strong network of commission agents.