Traders fear wheat prices may fall below MSP in 2026-27 on surplus stocks

Market participants warn that surplus stocks and OMSS sales could push wheat prices Rs 300-400 per quintal below MSP in 2026-27, denting farm incomes and distorting trade signals

As the 2026-27 wheat marketing season begins in full swing over the next few weeks, traders and market players anticipate prolonged price weakness due to the burden of a likely bumper harvest, an event that will further exacerbate an already oversupplied market.

 

Most traders and farmers are apprehensive of a significant drop in prices — estimated at Rs 300–400 per quintal — below the state-mandated minimum support price (MSP) of Rs 2,585 per quintal for the 2025-26 season in areas where government procurement is weak.

 

A drop in market prices of wheat could further depress farmer incomes in a year when prices of several agricultural commodities have already declined.

 

As a result, the nominal growth rate of gross value added (GVA) in agriculture and allied activities is projected at a record low of just 0.8 per cent in FY26, largely due to a dip in inflation, down from 10.4 per cent in the last financial year.

 

Wheat is one of the main cereal crops grown in the northern Indian states of Punjab, Haryana, Madhya Pradesh, Uttar Pradesh and Rajasthan.

 

It has significant economic value, which is likely a key reason behind the Centre’s recent nod for exports of 2.5 million tonnes (MT) after a gap of almost four years.

 

The easing of export curbs has been announced despite little possibility of any substantial shipments from India in the next few months, given there is little to no parity between domestic wheat prices and global rates.

 

“Till this year (2025-26 marketing year that started in April), most wheat-growing farmers could sell at or near MSP, helped by robust government procurement and tight supplies. Next year (2026-27), however, only farmers in Punjab and Haryana are likely to see active procurement at MSP; in other states, market signals already point to prices slipping way below MSP by Rs 300–400 per quintal once the harvest peaks,” a senior industry official said.

 

“The reason is not just the collapse of demand for wheat due to oversupply, but also how wheat markets have been managed by the authorities,” this official added.

 

“Last year, traders, stockists and processors bought wheat alongside the government at or near MSP, expecting to recover their carrying costs through normal seasonal price appreciation. When prices began to rise, the government opened the open market sale scheme (OMSS) tenders at a subsidised base price of Rs 2,550 per quintal. This undercut private stocks, prevented them from covering carrying costs and led to losses estimated at Rs 300–400 per quintal for many private players,” this official explained.

 

After procuring at MSP and above, he pointed out, the government is now effectively competing with farmers in the same market by selling the same wheat to millers at subsidised prices below its own declared MSP.

 

“Will the minimum support price of Rs 2,585 per quintal on wheat retain its meaning if government policy itself undercuts it in the market? The current design and scale of open market sale scheme (OMSS) wheat sales, coupled with surplus stocking and past tender behaviour, strongly suggest that for most farmers outside Punjab and Haryana, MSP risks becoming more notional than real in the coming marketing season,” the official asked.

 

How is OMSS affecting wheat market dynamics?

 

Several traders and market participants feel that though the OMSS is meant to cool retail prices for consumers, its timing and operations need to be calibrated strategically so that it does not end up hurting the consumer.

 

Under the OMSS, the government offloads wheat into the open market to cool prices when they rise too sharply.

 

In principle, this is a legitimate tool to protect consumers and ensure price stability over the year, since wheat is harvested in April–May but consumed all year round.

 

In practice, however, traders said that the current OMSS design sends an entirely different message.

 

“Wheat that costs the exchequer about Rs 2,969 per quintal to procure and store is being offered to flour mills at a base (reserve) price of Rs 2,550 per quintal, with freight extra. This means wheat is being sold to processors below both its economic cost and the MSP of Rs 2,585, implicitly subsidising them by roughly Rs 4,190 per tonne relative to economic cost. About 3 million metric tonnes (MT) have been earmarked for such subsidised OMSS sales this year (2025-26), of which just 0.63 MT (around 21 per cent) have already been lifted, translating into an estimated subsidy transfer of around Rs 262 crore to flour mills on this volume alone,” the industry official explained.

 

He said that, ironically, much of this subsidised sale hardly benefits the real consumers for whom it is meant.

 

“Much of this wheat (which is sold through OMSS) is milled into maida and suji, which feed industrial users such as bread and biscuit manufacturers, snack producers, halwais, and pasta or noodle makers. Retail prices of these products rarely come down when input wheat gets cheaper; margins and marketing budgets expand instead. The policy thus ends up cushioning large processors rather than households, while exerting downward pressure on farm-gate prices,” the official explained.

 

The end result of all this is a sharp drop in farm-gate prices, little or no impact on inflation of processed items, and a burgeoning food subsidy burden instead, since the government becomes the sole buyer to shield farmers when market prices drop below MSP.

 

Are surplus stocks distorting wheat price signals?

 

Last year’s bumper harvest encouraged an aggressive procurement drive. The government bought about 30 MT of wheat at an MSP of Rs 2,425 per quintal, with two states — Rajasthan and Madhya Pradesh — offering additional bonuses of Rs 150 and Rs 175 per quintal, respectively.

 

However, there will remain a significant surplus since the Centre’s requirement for the public distribution system (PDS) and other welfare schemes is only around 18.4 MT. Trade sources say that by the end of the current financial year on March 31, 2026, the government is expected to hold nearly 13.5 MT of wheat, over and above buffer norms of around 7.5 MT — an overhang that weighs heavily on policy choices.

 

In the 2026-27 season, traders believe that if prices drop below the MSP, then the government might again end up buying more than 30 MT of wheat.

 

“Sitting on such stocks carries financial and storage costs, and invites criticism when global prices soften. The temptation, therefore, is to ‘correct’ the mistake of over-procurement by pushing wheat out into the market through OMSS at lower-than-MSP prices, disrupting the trade,” the official explained.

 

Traders said MSP has always been more than a price — it is a signal that the State stands behind the farmer.

 

But that assurance is unevenly distributed. The bulk of wheat procurement at MSP still comes from Punjab, Haryana and, increasingly, Madhya Pradesh.

 

“In large wheat-producing states like Rajasthan, Uttar Pradesh and parts of Bihar, procurement infrastructure is patchy, and farmers typically sell to private buyers. If those private buyers know that OMSS wheat is available at Rs 2,550, and may be offered in still larger quantities if prices firm up, they will not bid aggressively for freshly harvested wheat at Rs 2,585. The MSP then ceases to function as a floor,” the trader explained.

 

He said India needs both: Stable consumer prices and dignified producer returns. The question is not whether OMSS should exist, but how it is designed and sequenced so that it does not sabotage MSP.