Posted by: commoditywise | December 18, 2007

Wheat – US gains on India’s folly

W

heat futures on Chicago Board of Trade (CBOT) surged more than three percent on Monday (December 17, 2007) and surpassed $10 a bushel for the first time. And while leading wheat buyers from Australia are reported to have preferred to stay away from buying wheat currently, India has continued to import wheat even at such high levels. 

India, largely an agrarian economy and one time one of the leading wheat producer, seems to have faltered on its wheat policy despite government’s support to wheat growers.

For various reasons, India’s agriculture ministry is forced to continue to import wheat – third time in 2007 and for third year in row. During 2007 wheat prices have almost doubled. The last tender to import 350,000 tn floated by State Trading Corporation (STC) on December 10, 2007, closed yesterday, December 17, 097. The wheat would be delivered in April 2008. 

On Monday, December 17, the bellwether Chicago Board of Trade March wheat (WH8) contract rose by the 30-cent-per-bushel daily trading limit to $10.09 per bushel, before falling back to $10.01, reported CNBC.com on December 17, 2007. The gainers are not just the wheat producers and exporters in USA, but also the commodity funds, hedge funds, and investors largely unrelated to the agro economy, except for taking advantages of the rise in prices. 

No, despite its voracious requirements that force import of wheat, there has been no attempt by the Indian government to take advantage of hedging mechanism – neither on domestic nor on international commodity exchanges. The government has suspended trading in wheat futures since March 1, 2007 following rise in prices in domestic markets and severe ruckus raised in the Parliament by the opposition parties, including the members of the Left Front which is a partner in the current United Progressive Alliance (UPA) Government led by Congress.  

In India, wheat can be purchased only in the spot market and the prices keep on fluctuating for various reasons. There is no hedging mechanism and so no one can lock in wheat purchases at relatively lower prices that can be seen on the commodity exchanges. So, after having got severely stung by the government’s suspension of trading in wheat futures in March 2007, the National Commodity & Derivatives Exchange (NCDEX) now plans to introduce wheat on its newly set up NCDEX Spot Exchange, a wholly owned subsidiary of NCDEX. As NCDEX has focused on agro futures, its volumes got severely impacted by the government’s suspension in wheat futures.  

Therefore, it is difficult to understand what sort of progress is being exercised by the UPA government by continuously importing wheat from the USA at highest ever prices, and that too without any sort of hedging mechanism. And surely there is no such an urgent need to import wheat thrice in an extremely bullish year for wheat prices. The likely shortage of wheat – both in the domestic and international market – could have been perceived by the Agriculture Ministry well in advance so as not to burden the wheat consumers of India with such high priced wheat – and no political party in India is at all bothered by this situation as no one is now complaining!! 

Interestingly, during the 10-days of the latest wheat import by India, the bidders too have been forced to raise their quotes for supplying wheat tendered to be imported by STC. As the STC’s latest bid to import 350,000 tn of wheat ended yesterday (December 17), the bidders raised their bids to around $ 459.90-579.62 usd per tonne from earlier levels. 

The pain for Indian wheat consumers – in the form of higher wheat and bread prices – is likely to be a bit more severe in 2008, as the farmers have delayed to sow winter crop of wheat in most of the northern region. In India, each year farmers in northern region grow two crops – sugar cane in mid-June July followed by wheat sowing in November –December. The delay for wheat sowing this season in November- December 2007 is caused by the ongoing delay in the payments by the sugar mills. Pending their receipts from the sugar mills, the farmers can’t go ahead with wheat sowing by mid-December. 

Sharad Pawar, India’s Agriculture Minister, a representative of sugar barons from Maharashtra, has once again been successful in forcing the Central Government to shower multi-crore largesse for the sugar sector earlier this month. This largesse would surely benefit the sugar millers (also Sharad Pawar and his loyalists), but these millers now raise objection to the payment to farmers on the basis of the State Administered Price (SAP) which though cleared by the Supreme Court in 2004 is said to be higher than the central government’s price. 

The Indian farmer is entangled in the policy tangle of the sugar barons. Therefore, the enforced delay in sowing wheat this season, would in turn would lower the wheat crop further during the 2008 wheat harvest season – April-June 2008. And interestingly, it is during this time India expects to receive the consignment of 350,00 tn of wheat tendered earlier in December 2007. 

Little, wonder therefore, instead of finding solutions to the wheat tangle in our own homeland, both our ministers and the government are finding the solution to the possible wheat shortage problem by importing wheat from USA. May be the stronger rupee is one of the attractive factors whereby the importing India would have to pay less in US dollar terms – but this neither solves India’s wheat conundrum, nor help the farmers and the wheat consumers.

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