Disparity widens in wheat spot, futures

A disparity is emerging between wheat prices in the spot and the futures market, with the former trading much higher than the latter.

Market players feel the gap is st to widen further. Fresh demand and the ongoing supply squeeze are keeping prices in spot markets high, but prices in the futures market are slipping.

Spot prices, at present, are at the Rs 872-885 a kg level, and are expected to be supported at current levels for the next 15 days, following low government stock-levels and a tight supply-demand scenario.

"Prices in the spot market will continue to rally if the government does not do something to ease the situation, like allowing imports or getting additional supplies," said R Jain, co-proprietor of Delhi-based Rajdhani Atta mill.

"A rise of another Rs 15-20 a 100 kg, cannot be ruled out," he added. Futures, especially the Ncdex December contract is witnessing huge selling interest and is likely to rise as the contract expiry nears (December 20), said a Delhi-based broker.

Ncdex wheat stocks stood at 16,356 tonne as on December 3. While the open interest (OI) for the December contract stands at 94,610 tonne, as at 4:20 pm today. "Available stocks are just about a fifth of total open interest for the contract and this supports fresh selling," said Rishi Goel, a New Delhi-based trader.

According to a Mumbai-based analyst: "The December wheat OI reveals an interesting relation between the bulls and bears. The bears have been continuously selling on the futures market, despite spot prices being high. Some of these short positions will end up in delivery at high premium centers such as Khanna, Karnal or Kota, but OI for December is huge, and not all contracts will result in delivery. Long liquidation interest remains largely absent in wheat futures, despite sharp selloffs. It will therefore be interesting to monitor who exits the positions first ahead of the expiry."

A segment of the market believes that bears will stay their ground and may capitalise on the idea that bulls are not keen on taking delivery, which will command high premiums in centres like Khanna, Punjab, and Karnal, in Haryana. However, in the current scenario, high volatility is likely as the contract nears expiry.

"December contract will become choppy as it moves towards expiry and may end around Rs 800 a 100 kg," the analyst added.

Delivery prices ex-Khanna are at a premium of Rs 41 a 100 kg. This has helped selling interest to gain ground in futures. Selling pressure was accentuated with government acreage estimates showing good sowing figures for wheat.

At 4:30 pm IST today, the Ncdex December wheat contract traded at Rs 820.20 a 100 kg, up Rs 4.40 from previous close and saw an OI of 94,610 tonne. Delhi spot market remained unchanged at Rs 878.50 on tight supplies.

While government estimates peg the shortfall for the 2005 season to be an insignificant at 720 lakh tonne, compared with the 721.1 lakh tonne last year, market players peg the recently harvested crop at around 690-700 lakh tonne.