With the government?s wheat procurement touching an all-time high of 21.2 million tonne (mt) to May this year?bolstering the Centre?s wheat stockpile after two years of shortfalls?the empowered group of ministers (eGoM) monitoring grain stocks has decided that the country need not exercise the call options it had booked in the international wheat futures market in April.
Though India had hedged for only a meagre 180,000 tonne of wheat, its significance lies in the fact that it represents the government?s first step to secure price-stable supplies through market instruments, rather than via global tenders as in the previous two years, which jacked up global prices.
The eGoM, headed by external affairs minister Pranab Mukherjee, at a meeting a fortnight ago, decided that that the hedging operations undertaken by State Trading Corporation should be closed and the surplus transferred to Food Corporation of India to adjust against the food subsidy account. The net surplus on account of hedging transactions, after accounting for payment of the option premium, is estimated at $32.13 million.
A call option tender is floated when a buyer fixes the price at which he will procure a predetermined quantity of a commodity within a stipulated time frame. If the buyer does not exercise the call option, he only pays the premium.
The price settled for the latest call option tender issued by the Centre was $406 a tonne at a premium of $30-40 a tonne. Global trading firm Cargill International was awarded the contract for delivery in April this year. However, the eGoM overseeing grain procurement has been asked monitor Chicago Board of Trade futures to evaluate the market in July for possible hedging of wheat contracts for next May.
In 2006, India imported around 5.5 mt of wheat through global tenders to meet a domestic procurement shortfall. Around 1.8 mt was imported in 2007 as state agencies failed to meet the demand for 15 mt.
Of the 21.5 mt of wheat procured by May, 3 mt would be transferred to the strategic reserve.