India Should Export Some Wheat, Rice - June 14, 2008

Mumbai: India attracted a lot of flak, of late, from various quarters for contributing to the ongoing global food crisis. The country’s appetite for food has been blamed for the price spurt. Here is an opportunity for India to actually contribute to cooling of world cereal prices.

With production of about 76 million tonnes (mt) and procurement topping an unprecedented 22 mt, India is smugly placed as far as wheat is concerned. Including the opening stock, the Food Corporation of India may currently be holding more than 26 mt of wheat. With such a comfortable inventory, the prospect of import has all but vanished

IGC outlook

The global wheat scenario is one of optimism too. For the year 2008-09, latest estimates suggest wheat production going to a record high. The London-based International Grains Council (IGC) has projected the world production at a new high of 650 mt , from the previous year’s 604 mt.

The US Department of Agriculture earlier this week came up with a bumper crop estimate of 663 mt (611 mt). Australia, European Union, Canada, China, Russia, Ukraine and USA are all set to harvest larger crops.

World wheat consumption is set to grow robustly. IGC sees wheat use expanding by 20 mt to 632 mt. Driven by lower prices, food and feed use is expected to increase. Yet, clearly, world consumption is sure to trail production given the strong output growth. No wonder, the market has already taken cognisance of the ensuing developments and prices have begun to slide.

Weather uncertainties

Despite a large global surplus, wheat prices are most unlikely to crash or even decline to levels seen two years ago. Further, weather uncertainties, especially in origins such as Australia, can change the current rosy picture.

Additionally, the prospect of a large corn (maize) crop in the US is receding because of wet weather in the Midwest. High corn prices are sure to divert a part of consumption demand towards wheat, especially for feed purpose, and to a lesser extent for ethanol.

Although world prices are correcting down, they would still be at a high level. India should take advantage of the global price situation.

There is an opportunity to export at least 2-3 mt of wheat.

The Government has procured wheat at the support price of Rs 10,000 a tonne. After adding local and other levies, wheat at the warehouse costs about Rs 11,000 a tonne. In addition is the cost of carry, which is not less than Rs 2,500 a tonne a year.

With government holding in excess of 25 mt now, the opening stocks for the next season may be conservatively placed at 7-8 mt, the cost of which would be Rs 13,500 a tonne. There is an opportunity to cut at least partially the wasteful food subsidy incurred on storage of excessive quantities of wheat.

The rupee too is favourably placed for exports at over 42.50 to a dollar. So, an export price of anything over $300 a tonne free-on-board should make a lot of sense for the country.

Export of 2-3 mt wheat from India would aid in cutting the subsidy burden besides helping to cool international wheat prices. But timing is the key. Also, the decision to export would require tremendous political will and courage. At the same time, steps to ensure wheat production next year remains at the same level, if not higher, need to be initiated.

Similarly, the complete ban on export of non-basmati rice should be reviewed and lifted, albeit partially. It is rather ironical that the Government talks about record rice production of 94 mt and goes on to impose an export embargo. Export of up to two mt of non-basmati rice in a well-regulated manner would ease global supplies and cool rice prices.

Maize exports

Maize exports from the country are going on. Shipments have exceeded two mt. This has provided the growers with remunerative prices.

The kharif season is upon us; and the primary objective should be to maximise grains output, especially rice and maize. Large production in India and the possibility of exports out of the country would surely help contain global food prices, and counter negative publicity about India’s border control measures.

Structural Transformations Takes Place In Global Grains Market

A structural transformation is taking place in the global grains market. The ongoing changes are expected to have far-reaching implication for the market in the coming years.

How ready are grain sector stakeholders to meet the emerging market dynamics? The international seminar on ‘Wheat and Wheat products: Vision 2020’ that concluded a few weeks ago in Bangalore brought together a diverse group of participants, including Indian policymakers as also industry an d trade representatives from within the country and outside.

The meeting took note of the emerging issues of the wheat sector and possible responses to address the challenges. The effect of climate change was one of the key issues for scrutiny. Grain prices, in general, and wheat, in particular, have reached new highs in recent times. Across the world, there are howls of protest against rising food prices. Why are grain prices so high?

Clearly, demand-side and supply-side factors are at work. Traditionally a food crop, wheat is currently used as food, feed and fuel. Asia has emerged as major consumer of wheat for food purposes.

Two of the world’s most populous countries, China and India, are the top two wheat producers and consumers. Wheat demand as feed is also rising rapidly. Expansion of the livestock industry in Asia and the West is leading to rapid growth in feed consumption.

Biofuels, weather

Emergence of bio-fuels — bio-ethanol, in particular — has also meant diversion of wheat for fuel purposes in the US, Canada and elsewhere. Wheat is one of the minor feed-stocks for ethanol, which is produced mainly from either corn (maize) or sugarcane. So, the demand side looks rather robust with diversified and expanding uses of the grain. The supply side, on the other hand, is becoming increasingly uncertain.

Weather aberrations, competition for acreage and trade barriers skew the market. Weather has emerged as a big risk factor in the last two years, sending the grains market into a tailspin. For instance, one of the important suppliers to the world market, Australia, suffered drought two years in a row in 2006 and 2007, which affected availability and, consequently, prices.

Some others too suffered minor weather hiccups. India, for instance, had a less-than-satisfactory crop in 2005 and 2006. Competition for acreage is becoming increasingly fierce. In the US, one of world’s largest producers and exporters of grains, wheat, corn and soyabean compete for acreage.

Market prices, speculation

Last but not the least, rising market prices have encouraged countries to impose trade barriers. While import-dependent countries have opened up their borders, exporting countries have imposed export taxes or follow a quota system. Such restrictions have distorted the market further.

With expanding demand and persisting supply uncertainties, global wheat stocks have declined to some of the lowest levels in recent times. By the end of last year, the stock-to-use ratio was down to about two months’ requirement. Preliminary information points to an increase in world wheat output and easing of supply tightness in 2008-09. But one has to wait and watch how the fundamentals pan out in the coming months.

In addition, there is speculative capital playing a role in the futures market. Huge funds have begun to flow into the agricultural commodity trade. Agricultural futures markets are generally speculative. But the level of speculation has heightened in recent months because of the price performance of such commodities as wheat, corn, soyabean, oil and cotton.

The net long position of non-commercials or speculators as a percentage of net open position in the futures markets is large. It is axiomatic that in a market that is tightly balanced, even a small change in either demand or supply, or both, will exert a disproportionately large impact on prices.

Funds enjoy tracking and investing in such markets where the rewards for speculation can be attractive. Of late, wheat has become a favourite of many a fund.

Volatile markets

While deciphering the recent trends, one must bear in mind that in the commodity market, high and low prices are not rare. Also, history tells us that high prices tend to be short-lived. This is because there will be supply response to prices.

In commodities such as crude and metals, the supply response may not happen soon because of the long time lag between investment and output. But agricultural crops are different.

Their production cycle is short — 4-6 months. At any given time of the year, crops are either being planted or harvested in either the northern or southern hemisphere. So, one can reasonably expect supplies to catch up soon.

Having said that, one must emphasise that the spurt in prices of major food commodities is unprecedented in recent history, especially compared to the multi-year low prices witnessed early this decade.

Wheat prices, for instance, have simply doubled from what they were, say, in early 2007. The record spurt in prices of wheat, corn, oilseeds, and so on, has sent ripples through the value chain or supply chain of the food sector. No wonder, prices of not only grains but also related commodities such as milk and meat are soaring.

Processors and consumers are scurrying to cover their requirements and save themselves from further price increases. Relief from agricultural commodity inflation (called ‘agflation’) is unlikely anytime soon. Governments have recognised the threat from high food prices and have begun to take precipitate action to contain the damage.

China, for instance, banned the use of grains for bio-fuels in June 2007. Russia imposed an export tax on wheat. India too has taken a series of steps to shut out exports and augment imports.

As a fallout of food inflation, the ‘food versus fuel’ debate is becoming shriller. Should traditional foods be diverted for burning as fuel? How ethical is it to burn food when millions across the world are hungry and cannot afford high-priced food? This debate is likely to continue for a while until the market returns to more sensible levels.

Climate change and global warming have added a new dimension to the already unnerving market uncertainty. There is heightened awareness about the pernicious effects of rising average temperatures. Global warming, admittedly a slow phenomenon, can devastate agriculture.

Tropical countries are at greater risk of being affected by climate change. Adaptation and mitigation strategies need to be put in place to fight global warming.

India’s status

India’s concerns relating to grains, in general, and wheat, in particular, are becoming more serious as time goes by. While demand continues to expand rapidly — driven by income growth, demographic pressure and changing food preferences — output has turned unsteady in the last 6-7 years.

Weather has turned suspect and water stress is becoming endemic. In frontline States such as Punjab and Haryana grain mono-cropping has resulted in deterioration of soil health. The water table has declined to alarmingly low levels. An ecological disaster is waiting to happen.

The demand-supply mismatch follows rising demand unmatched by production. This has an effect on market prices. There is now creeping dependence on wheat imports to augment domestic availability and rein in prices.

India may not exactly be food insecure today; but the widening supply gap does raise concerns over food security in the coming years. The per capita availability of foodgrains today is less than it was 15 years ago.

Grains are becoming inaccessible and unaffordable for the poor. So, the future looks uncertain and somewhat scary. Rising energy prices too contribute to food inflation globally as the cost of food production rises.

Synthetic fertilisers, use of energy for mechanised farming and transportation costs rise with higher energy costs. So, high energy prices lift grain prices worldwide; and India cannot remain insulated.

Wheat could be one of the crops most seriously affected by global warming. Under Indian growing conditions, wheat is at the limit of heat tolerance. Any further rise in average temperatures during the growing season December-March can potentially affect yields.

Indian maize, in addition to wheat, is another important grain that is susceptible to global warming.

We need to take cognisance of this looming threat, in addition to several others that already exist. The research priorities are clear. We need heat-tolerant varieties that consume water efficiently. Farm scientists have their task cut out.

Four International Cos Submit Price Quotes For Wheat Supply

Mumbai: Four multinational corporations with offices in India – Cargill, Louis Dreyfus, A.C. Toepfer and Glencore – have put in their price quotes for supplying wheat to India.

The tenders, which were submitted in response to the Indian Government’s announcement to buy wheat on call option basis, may be opened on Tuesday; but from the line-up it is increasingly clear who the winner would be. While Cargill has offered a maximum of 2.7 lakh tonnes, the other three have offered 2.5 lakh tonnes each.

The Government may contract for a lower quantity of 1.8 lakh tonnes, it is believed.

According to sources close to the deal, the strike prices quoted by both Louis Dreyfus and A.C. Toepfer are above $400 a tonne with a premium of $35.0-37.5 a tonne. Cargill has quoted $407 plus premium of $30 for delivery at Kandla and $399 plus premium of $30 for delivery at Mundhra.

From available information, Glencore appears to have quoted the most competitive price of $380 a tonne with a premium of $35 a tonne for Mundhra and $393 a tonne plus $35 for Kandla.

The offers are for delivery of cargo at Kandla and/or Mundhra ports in Gujarat. The option to seek delivery is to be exercised on or before August 16. The goods will have to arrive at the Indian port before November 1, that is within 75 days from the date of the exercise of call option. If the call option is not exercised by August 16 and India does not want to take delivery, the overseas supplier will have to be paid the premium amount.

Prospects improve

With improvement in world wheat production prospects for 2008-09, forward prices have begun to soften. Overseas suppliers invariably add a risk premium to the price while dealing with India. The good news on the home front is that wheat procurement by the Food Corporation of India (FCI) has already touched 6 million tonnes. Almost 100 per cent of arrivals in Punjab and close to 90 per cent of arrivals in Haryana have been mopped by the Government parastatal. At this rate, FCI would comfortably meet the procurement target of 15 million tonnes, it is believed. Even as the Government is trying to import, wheat prices on Chicago Board of Trade have crashed.

FCI To Procure More Wheat This Fiscal

NEW DELHI: The Food Corporation of India on Wednesday announced that it would procure nearly 135 lakh tonne wheat this fiscal.

Speaking to reporters here FCI Chairman and Managing Director Alok Sinha said FCI expects to lift at least 135 tonne of wheat in 2008-09, up by 23 lakh tonne over the current fiscal.

He said, “The major factors behind increase in lifting would be higher MSP, good crop in Punjab, Haryana, Northern Rajasthan and Western Uttar Pradesh, and low interest of private buyers in buying the crop.”

From Punjab and Haryana alone, FCI expects to lift 85 lakh tonne and 40 lakh tonne of wheat respectively, he informed.

FCI procured 92 lakh tonne of wheat in 2006-07, followed by 112 lakh tonne lifted in 2007-08. With the procurement of 135 lakh tonne of the crop, the wheat stock of the country would reach 188 lakh tonne.

The agency predicts that the private buyers would not be aggressive this year for wheat buying due to stabilized domestic wheat prices.

Wheat, Atta Prices Dip On Increased Supply

New Delhi: Wheat dara prices declined further by Rs 10 a quintal in the wholesale grain market here on Saturday due to selling pressure from stockists along with increased supply.

Prices of maida and sooji also moved down. However, other commodities, including rice remained static in scattered buying or selling.

Marketmen said slackness in buying from rolling flour mills, mainly pulled down wheat dara prices.

Increased supply from producing belts amid slackness in demand, brought down the price of rice too, they added.

Wheat dara dropped further by Rs 10 to settle at Rs 1,100-1,110 a quintal, while wheat mp deshi remained quiet at Rs 1,300-1,575 a quintal.

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Chakki atta delivery and rolling flour mills price also finished lower at Rs 1,105-1,110 and Rs 1,100-1,105 instead of Rs 1,110-1,115 and Rs 1,105-1,110 a 90 kg bags respectively.

Maida and sooji prices too shed from Rs 1,200-1,210 and Rs 1,210-1,230 at Rs 1,190-1,200 and Rs 1,200-1,210 a 90 kg bags respectively.

Global Meet To Focus On Emerging Wheat Scenario

Bangalore: A two-day international wheat seminar that kicks off here on Friday will focus and analyse eventualities that will emerge in the foodgrains production, demand, nutrition and food security in 2020.

The seminar, Vision 2020, will see good participation of delegates from Canada, France, the US, Germany and West Asia, which would create opportunities for domestic participants to interact with the former, according to Vinod Kapoor, Chairman of the organising committee of the seminar.

Stocks at 28-year low?

Kapoor said the seminar will hold brain-storming sessions on prospects of wheat with the global prices rising 70 per cent in the last 12 months.

Wheat stocks at the end of the crop year (July 2007-June 2008) was expected to be at a 28-year low of 110.9 million tonnes (mt), he said quoting the US Department of Agriculture report.

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A projected record production of 75 mt this year in the country would take care of the country’s annual demand of 62 mt and buffer stocks in April was expected to be 50 lakh tonnes, he said. This would also avoid the need for imports this year.

“By 2020, India requires an annual production of 92 mt and as on date, we are short by 17 mt. We need to spruce up production to meet the anticipated demand,” he said.

Output prospects

To a question on prospects of raising production, Kapoor said the Indo-Gangetic plain held good prospects where 20 million hectares were under wheat. “Currently, we are getting 2.5 tonnes of wheat a hectare and with better seeds and crop protection measures we can raise it to four tonnes,” he said.

The Centre’s National Food Security Programme, which is currently being implemented in many States, also targeted to top 80 mt of wheat by 2001, he added. On the trade side, Kapoor said traders were looking forward to a fair opportunity to sell or buy across the country.

Bangalore has been picked as the venue to host the seminar as it has emerged as an important centre for milling and backing. “ITC and Britannia, which are major consumers, are also based here for their wheat operations,” he said.

Global scenario

M.K. Dattaraj, President, Roller Flour Mills Federation of India, said the seminar would focus on international wheat situation and the issue of increasing productivity.

“We will discuss long-term policy to meet the situation that could arise in 2020, besides the issue of using foodgrains for bio-fuel,” he said.

Ravi Krishna, President, Society of Indian Bakers, said the Government authorities should appreciate the fact that wheat-based food products such as bread and biscuits were the cheapest and exercise control.

Flour Millers See No Benefit From Futures Trade

Bangalore: Roller flour millers, the major consumers of wheat in the country, are not worried about the freezing of futures trade in food grains, particularly wheat.

“Futures trade is to hedge risk for producers and buyers. We have over 1,100 flour mills in the country and 2,000 chakkis (grinding mills) who deal in wheat. But we are dependent on our buyers. When they are hedging their positions, we do not feel compelled to take part in futures trade,” said Vinod Kapoor, Chairman of the organising committee of the fourth international seminar on wheat.

“The major deciding factor in wheat price is demand-supply. We don’t see futures market following fundamentals. There is a consensus among roller flour mills that we will not take part in futures trading,” said M.K. Dattaraj, President, Roller Flour Mills Federation of India.

Reasons

One of the reasons why the millers are not interested in futures is that apart from the procurement period, the wheat market is “fairly unregulated”. “All regulations of wheat trade are present only during the procurement between April and June. After that, the farmers are free do anything with their stocks and even sell without paying tax,” Kapoor said. “Such circumstances do not hold prospects for us in futures trading,” he said.

Dattaraj said 2007-08 did not witness any unprecedented rise in wheat prices, despite the absence of a forward market.

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“We have put forth our views to the Abhijit Sen panel which is examining futures trading in foodgrains,” Kapoor said. “On the other hand, a section of growers want futures trade. We have nothing to say on that and it is entirely up to them,” he said.

The Centre, worried over rising prices of wheat and pulses, froze futures trading in wheat, rice, urad and tur in March last year. The Finance Minister, P. Chidambaram, in his budget speech, said a panel headed by Dr Abhijit Sen would go into futures trading in essential commodities. Initially, the panel was given two months time but till now, it is yet to finalise or submits its report.

Bourses such as the NCDEX and the MCX are keen on revival of futures trading in grains and pulses as the freeze has affected their turnover.

India Exploring Wheat Import Options

Mumbai: The global commodity markets are currently in a state of uncertainty. Prices remain volatile and outlook has turned increasingly uncertain in the backdrop of broader market concerns, especially in financial and energy markets. The global grains market is no exception. Wheat and soyabean prices spiked recently on the futures bourses to set new records. Corn (maize) too is tightening.

Investors are increasingly turning to agricultural commodities. The next 2-3 months are crucial. From now on, the focus of the global grains market participants would increasingly be on developments in the US. How the US farmers would respond to price changes in recent months, what would be their planting intentions and what considerations would weigh with them for any change in acreage allocation (including weather and disease outlook) are questions that would be pondered over.

The focus would also be on the northern hemisphere as a whole, with outcomes of crops in China and India being keenly watched. As far as the US is concerned, if the extent of price rally is the basis of decision by the farmers there, then wheat stands the best chance of an area expansion, followed by soyabean. Corn would be third in priority as its prices rallied less than the other two.

Volatility hook

However, until acreage numbers crystallise, the market would only be double-guessing the actual outcome. Therefore, a lot more choppy trading and volatility can be expected. According to the London-based International Grains Council (IGC), on current reckoning, the 2008 outlook for wheat is generally positive. Assuming reasonable weather in main producing areas, world wheat output is forecast to rebound by about 40 million tonnes (mt) to a record 642 mt.

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There is also strong expectation that soyabean production in 2008 would rebound by at least 10 per cent, especially in the US, from the previous year’s low of 70 mt (down 16 mt from 2006). Should that expectation materialize, and if combined with large oilseeds crop in China and India, the outcome will have price implications for the global vegetable oil market, notwithstanding the frenzy created by the bio-diesel sector.

Scouting for wheat

Meanwhile, there are reports about Indian wheat acreage having reached close to last year’s levels (27 million hectares). Official statements suggest expectation of crop size close to 2007 level of 75 mt. There are also reported statements that India would not need to import any more wheat.

Despite the brave assertions, it is believed that India is seriously scouting for wheat in the global market. The Government may be unwilling to take a chance as far as availability and prices are concerned, especially when elections are looming large.

Explorations are going on rather quietly because of the ruckus the last import contract created. The Government is currently engaged in examining various options. A barter deal with Russia is being studied. Exercising the ‘call option’ is another step that is under contemplation, although the last time it fizzled out.

Discussions with US

Importantly, discussions with even the US are currently on for wheat imports. It maybe recalled, the US could not supply to India because the latter refused to loosen the strict phyto-sanitary requirements. Meanwhile, the domestic trade has other ideas about the crop size.

Global Wheat Meet To Focus On Output

Bangalore: An international seminar, “Wheat and wheat products - Visions 2020”, will be held here on February 8 and 9 to focus on strategies in production, trade distribution and consumption in a global perspective.

The meet is being organised jointly by the Wheat Products Promotion Society, the Roller Flour Milers’ Federation of India, the Karnataka Roller Flour Mills Association, the All-India Bread Manufacturers and the Society of Indian Bakers.

With the wheat markets having witnessed a price increase of more than 70 per cent in 2007, the low year ending stocks and future scenario of wheat demand and supply, and wheat perspectives have to be viewed in this context.

Change in food habits

An increasing trend in changing food habits following the robust economic growth is resulting in higher disposable income and has also brought to focus the issue of production of quality wheat for food and nutritional security.

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The meet will discuss an entire gamut of issues in production, quality and distribution, with a particular focus on India’s increasing influence on international wheat trade, said the Wheat Products Promotion Society.

Separate technical sessions will be addressed by policy makers and experts, who include, T. Nanda Kumar, Secretary Department of Food, Consumer Affairs & Public Distribution, Alok Sinha, Chairman, Food Corporation of India, and other senior officials.

A large number of delegates from Canada, the US, Germany, Singapore and West Asia are also expected to participate in the meet, while farmers groups, major Indian traders in commodities, principal commercial buyers, processors at the primary level and manufacturers of wheat-based consumer products will bring out the trends in inter-relationships between the buyers and sellers.