Wheat prices up 2.5% in the past week as FCI procurement loses pace

Wheat prices in the Indian domestic market rose 2.5 percent in the past week, keeping purchases of grain from the struggling central pool past the 27 million tonne mark. This comes despite the Ministry of Agriculture raising its production estimate on Thursday by 0.5 percent to 112.74 million tons.

According to officials, wheat purchases lost momentum and as of May 24, Food Corporation of India (FCI) had purchased 26.17 metric tons with Punjab being the largest contributor. Punjab farmers sold 12.57 metric tons of wheat to FCI and the purchase was completed on Thursday. Madhya Pradesh at 9.25m and Haryana at 6.31m are other major contributors to the central pool.

At the same time, the weighted average price of wheat rose to $2,272 a quintal from $2,216 a week ago against the minimum support price (MSP) of $2,215.

The market is not affected

The USDA’s higher expectations for wheat production did not sway the market, with many traders saying it was “out of sync” with the ground facts. “If the production is over 112 million tons, why can’t the government buy the target 34.51 million tons of wheat?” asked a Delhi-based trader. “We will be happy if the production turns out to be 103-104 metric tons,” said a miller from South India.

A trader said wheat purchases may not exceed 26.3 million tons this year on current trends, as farmers either hold their produce or sell it to private traders above the MSP.

The government is in trouble

The Rolling Flour Mills Federation of India (RFMFI), which conducted a crop survey, estimated the yield at 104.24 metric tons. The US Department of Agriculture has estimated the Indian crop at 104 metric tons. Last year’s production was pegged at 107.74 metric tons, although trade believes it is about 100 metric tons lower. “Over the past month, wheat prices have increased by Rs 250 per quintal,” said Pramod Kumar, President of RFMFI.

On Thursday, flour industry representatives led by Kumar met with Food Minister Sanjeev Chopra seeking to restart the Open Market Sale (OMSS) scheme for wheat.

Traders said the center was in a critical situation, with the wheat crop falling again this year due to bad weather. Last year, the crop was hit by a heat wave that swept through the growing areas during the months of March and April. This year, excessive heat in February followed by a cool and wet March affected the crop.

Stocks are at their lowest in 15 years

Trade sources said the center may resume the OMSS system for controlling wheat prices as it did during January-March this year. At the beginning of the year, wheat prices rose to more than 3,300 quintals of rupees forcing the government to release 5 tons of wheat under the OMSS system.

About 3.5 tons of wheat was procured by bulk and other users until 15 March before OMSS was discontinued. Last year, mills sought OMSS during October and November. This year, they are now seeking. The supply and demand situation appears to be precariously balanced, said the miller from southern India.

According to the FCI, wheat inventories at 29.03 metric tons as of May 1 were the lowest since 2008, while food grain inventories at 55.53 metric tons are at their lowest level in six years. In addition, FCI has a stockpile of 22.69 metric tons of unmilled rice, which can yield 15.88 tons of rice.