In an unexpected move, wheat prices that were poised to drop sharply under the weight of rising inventories have jumped to multi-month highs, stroking concerns that after gold the next big boom could come in foodgrains. Though sceptics believe that there is an element of speculation in the recent rally, the likely factor has been the sharp drop in production and exports in Russia, the world?s fourth-largest wheat exporter. The US department of agriculture recently said that wheat output in Russia may drop to 50 million tonne (mt) this year, 19% less than last year as the worst drought in 130 years trimmed output. Russia?s exports may decline 23% to 14 mt, which can seriously impact availability of the widely consumed Black Sea wheat. The International Grains Council has downgraded world wheat stockpiles forecast by 2.5% to 192 mt by June 2011, reversing a June forecast for higher inventories. The fall in Russia?s production coupled with concerns about wheat production in Kazakhstan and western Australia have hurled prices northwards.
The September-delivery contract in Chicago rose as much as 0.6% to $6.975 a bushel on Tuesday; it had reached $7.1125 on Monday?the highest level in the last 22 months. Experts believe that any move by Russian authorities to curb exports will hurl wheat futures towards $8.50 per bushel. But does Russia?s reduced presence in world markets open a window of opportunity for India, where godowns are brimming (stocks as on July 1 were estimated to be around 34 mt against a buffer and strategic requirement of 20.1 mt)?
Even if the government allows private traders to export wheat?prospects are limited as there is hardly any surplus?the export price of the grain purchased from UP (the only state where private traders are active), will be around $330 per tonne after factoring in transportation and other incidental costs. Australian and Argentinian wheat is available in the global markets at a lesser price of $260-$270 per tonne (FOB), January-December delivery. As an alternative, the government could start exporting wheat from its godowns as and when returns become remunerative. Or it could subsidise private exports, which looks unlikely.
?sanjeeb.mukherjee@expressindia.com