The Hindu Business Line : Wheat: The worst may not be over yet

World wheat market has turned a sellers market with tightening supplies and rallying prices, something that should cause concern in India. Imports are likely to become more expensive, pushed further by firming ocean freight rates.

Genuine apprehensions of a slowdown in purchases are developing as export prices have moved up by $30-40 a tonne since July. High cost imports would operate as a floor for the domestic market.

There is a belief Indian that policymakers failed to recognise market signals well in time.

Sharp rise

The immediate provocation for a sharp rise in international wheat prices is the deteriorating crop condition in the southern hemisphere, especially Australia. There are other bullish factors too.

For 2006-07, global wheat output is set to decline by a whopping 30 million tonnes (mt) from previous year to 588 mt and closing stocks projected to be down by 19 mt to 116 mt, one of the lowest in many years. Wheat prices moved higher in response to several bullish features including a large cut in Australia's forecast crop, while other factors included active buying by a number of countries, notably India, tightening European and Black Sea market supplies amid quality concerns, a sharp rise in US red soft winter wheat sales and heavy new crop commitments in Argentina, the London-based International Grains Council (IGC) said in its recent report.

Global wheat consumption estimated at 607 mt is decidedly higher than the year's forecast production although a slowdown in use is discernible. EU feed users are likely to switch to relatively cheaper barley and oilseed meals, while high prices will limit feed use in North America, and more wheat will be used for ethanol in Canada, the report pointed out.

Projected at 112 mt for 2006-07, world wheat trade will be 4 mt higher than in the previous year. India's imports may exceed 6 mt and Brazil's purchases will also increase after poor harvest, IGC said. Preparations for planting of the next wheat crop in the country should commence four-five weeks from now. The Government is yet to announce the minimum support price for the crop to be harvested in April.

Given moisture conditions (deficiency in several key areas) and little evidence of the Government doing anything positively drastic to boost production, it should surprise none if the next wheat crop turns out to be no better than the current year's.

On current reckoning, India is likely to continue to remain in the global import market in 2007 too. Can India avert imports? Production of 77-78 mt and procurement of 15-16 mt can possibly help save the blushes next year. But such a large increase in output is a tall order and appears to be beyond the known capability of the country.

Consumers should be prepared to pay a high price for the fine cereal.

Whether even a part of the high open market price actually reaches the primary producer (wheat grower) is highly debatable. The foodgrains management policies of the Government are in a shambles. One is not sure if the worst is yet to come.