Stock limit may not curb wheat tags

Most traders in the spot may not have adequate stocks to be affected by govt decision.

Introduction of limits on foodgrains stocks is likely to offer only a temporary respite to the government that is trying hard to curb wheat prices, analysts and traders said today.

They said though the exact impact of the move to impose stocking limits on wheat and pulses would be evident only after state governments issue notifications to this effect, so far it seems it will cause only a temporary dip in prices.

The Maharashtra government will cap wheat stocks held by traders in Mumbai and Thane at 150 tonne and in the rest of the state at 50 tonne.

On Wednesday, Karnataka, Gujarat, Andhra Pradesh, Madhya Pradesh and Rajasthan governments also said they were planning a similar move, while Delhi government said it would take a decision shortly.

The state governments sprang to action soon after they received a central government notice to this effect. On August 25 this year, the Centre restored powers to state governments to set stock limits and restrict movement of wheat and pulses to check rising prices.

A senior central government official said the notification was issued to force traders who have hoarded wheat to liquidate their positions and ensure adequate supplies in the open market.

"Announcements that state governments would cap stock holding capacity of traders created panic in the market, but the impact was limited to wheat futures," a Delhi-based trader said.

Wednesday, wheat for September delivery on the National commodity and Derivatives Exchange fell to Rs 951.60 per 100 kg, down Rs 17 from Tuesday, before posting a marginal recovery to close at Rs 953.40.

Traders believe it may lose another Rs 15-20 over the next 1-2 days, but would start recovering after that on bargain hunting as shortage concerns are still in place.

Many believe that most traders in the spot may not have adequate stocks to be affected by the decision to cap stock holdings.

"There was no panic selling in spot markets today, which indicates that traders may not have large stocks and that further goes on to prove that there is a shortage of wheat in the country," Pramod Kumar, a Bangalore-based miller said.

In Delhi, spot prices of wheat were quoted at Rs 1,000-1,500 per 100 kg, unchanged from Tuesday despite reports that the state government will soon take a decision on stocking limits.

A Delhi-based broker said wheat spot prices were insulated from the panic selling in futures primarily because there was no clarification about the exact level of caps that the government may impose on stocking limits.

He said within the next 2-3 days, however, prices may still fall by about Rs 20-30 per 100 kg if the state government issues a notification.

A Mumbai-based analyst said the panic selling in both spot and futures market is likely to soon peter out as the underlying fundamentals for wheat are bullish due to a shortage.

"Big traders, particularly multinational firms that have large holdings, would have already put in measures to protect their interests, smaller players will anyway not liquidate their positions as they expect prices to rise by next month on festive demand," he said.

Analysts said the government seems to have played its last card to control prices. "Now there is little the government can do to curb a further price rise in wheat. The only options left are subsidised open market wheat sales or curbing futures trade in essential commodities," he said.

His views, however, are not shared by many industry officials. An official with a multinational trading house based in Delhi said the move to impose stock limits, particularly at this time, seems irrelevant.

"The government has already allowed duty free import of wheat. If prices rise beyond a certain level, millers will import and this will automatically cap wheat prices," he said.