Ministries differ on lifting three-and-a-half-year-old export ban.
The global market is waiting for India to open wheat exports as the world’s second-biggest producer of the commodity moves towards another bumper harvest.
Government departments, however, differ. While finance and commerce ministries favour opening exports to earn profits, the food and agriculture ministry is opposed to easing the three-and-a-half-year export ban.
According to Rabobank: “The Indian market is becoming crucial as export permission can act as a cushion to the market while any possible downward revision in wheat crop is a potential pressure point for prices.”
India produced a record 80.71 million tonnes wheat during the 2009-10 crop year and aims for 82 million tonnes in the ongoing rabi season. The Directorate of Wheat Research, a government agency dedicated to wheat research, expects domestic wheat output to exceed 82 million tonnes. Food Corporation of India (FCI), the government’s grain procurement and distribution agency, had wheat stocks of 25.55 million tonnes as on November 1. This is more than sufficient to meet the public distribution system (PDS) requirement of more than a year. In the next harvest season, beginning April 2011, the country may harvest over 82 million tonnes and, going by past trends (and increase of Rs 20 in support price per quintal, to Rs 1,120), the Food Corporation of India (FCI) could end up procuring over 25 million tonnes. The agency has been facing problems of storage, considering it also has a rice stock of over 23 million tonnes. Foodgrain stocks have increased after five successive good harvests of wheat, but the government, stru ggling to tame inflation, has not allowed wheat and rice exports, despite storage issues.
“The country has adequate stock of foodgrain to meet our needs... there is not much surplus for export in the short term,” FCI Chairman and Managing Director Siraj Hussain said earlier this week. Domestic wheat prices have remained stable, at around Rs 1,300 per quintal. FCI not selling wheat in market at lower price is also supporting prices.
By contrast, global wheat prices have remained firm, primarily due to unexpected production shortfalls following unfavourable weather conditions in a number of major producing countries, particularly in the CIS.
According to the latest forecast of the Food and Agriculture Organisation (FAO), wheat production stands at 648 million tonnes, which is 29 million tonnes less than that predicted in June. The bulk of this downward revision reflects a sharp fall in production in the Russian Federation, which more than offset a better-than-expected crop in the US and improved prospects in Argentina and Australia, according to FAO’s November report.
World wheat closing inventories are forecast to fall to 181 million tonnes, 10 per cent below the 2010 level. The tightening of supply has led to sharp price increases from the onset of the current season in July, with prices surging the most during August, when the Russian Federation decided to ban exports. Prices have remained firm since then.
In recent weeks, wheat prices have also been influenced by concerns about lower plantings in the Russian Federation and Ukraine, unfavourable crop conditions in the US and, more generally, the expectation of an insufficient increase in overall plantings, with farmers in many major producing countries likely to increase plantings of other crops. This prospect, combined with tightening maize supplies and a weak US dollar, continues to underpin wheat futures.
Wheat futures in Chicago for March delivery were quoted at around $267 a tonne, up around 33 per cent from the start of the season in July.
A recent Rabobank report expects that liquidation by speculators and broader macro uncertainties will weigh on wheat prices into the year-end. However, fundamentals continue to support a recovery in prices in the first half of 2011. While the peak reached in August as a result of the Russian drought may set the high for the season, the increase in uncertainty over output in both Russia and the US suggests this season’s heightened volatility will remain in play until there are additional supplies.
