Indian domestic wheat prices surge

Low stocks set the country on course to import

Mounting worries over the health of Indian wheat stock levels have fuelled increases in domestic prices and raised expectations that India could be forced to import wheat before its huge new harvest lands later this year.

India has recorded a strong surge in domestic wheat prices in recent days, and the government has been unwilling - or unable - to release stocks to cushion soaring prices.

That delay has only made the situation worse, with trade sources now speculating that imports would be among the possibilities now needed to regulate the internal market.

Domestic wheat prices have moved up to $390-400 per tonne in south India, as the shortage of wheat still persists in the country despite the government banning exports back in May in a bid to protect supply.

View our wheat prices here

The impact of extreme weather

That came as last year’s harvest fell well short of expectations amid drought conditions, making it hard for the government to replenish stocks which then fell below the mandatory threshold limit of 20.5 million tonnes.

Such was the impact on stock levels that some trade sources now think that the level could be well below that figure.

The expectation is that the government will release around 2 million tonnes of wheat from the Food Corporation of India (FCI) in the near future, but supply concerns within the industry remain.

“They are hand-to-mouth with stocks, and the moment they come out with the sale, they will break the numbers of buffer levels... the stocks with FCI on paper is not the real number, the stock is missing and the moment an additional 2 million tonnes is delivered [from reserves], the real number will be exposed,” Rajesh Paharia from Commodity Traders Delhi told Fastmarkets Agriculture.

He also said that while for private importers, the import tax is 40%, government purchases are duty-free and they will import whatever price is suitable and push it to calm down the local market.

“I am sure that the government will need to bring prices down to a range of 2021-22 years; otherwise, it won’t be able to procure much this season and for that, it has to increase availability in the physical market either through stock sales and/or imports and/or stock regulations,” Gaurav Jain from AgPulse Analytica said.

“And the steps need to be taken ASAP,” Jain warned.

Strength of local markets

“Local markets are very strong, there is clearly a shortage and the last year’s crop numbers are overstated, not sure if they open imports or not, (but) if you ask me, there are more chances for import than export,” a trader added.

At the same time, there were rumors among traders that India could possibly import wheat from Russia on a government-to-government basis, while back in October Russia’s state-backed news service TASS reported that India is considering the import of wheat from Russia to process it and re-sell to neighboring countries.

India is expecting a bumper wheat crop of 111-112 million tonnes in the 2023-24 marketing year, with the harvest set to start in March, but concerns remain that with current domestic prices, the government will struggle once again with its procurement service as it looks to rebuild battered stock levels.

Currently, the minimum support price (MSP) is well below current price levels, providing very little incentive to farmers who will most likely sell to the open market.

The MSP for wheat in 2023-24 is expected to increase to 2,125 rupees per quintal (the equivalent of around $260 per tonne), according to the government website.

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