US drought offers relief for subsidised wheat export plan

A jump in global wheat prices on drought in the US and Europe may save the Indian government of embarrassment on its grain management.

A jump in global wheat prices on drought in the US and Europe may save the Indian government of embarrassment on its grain management. Forced to approve subsidy on wheat exports to ease storage, the government may now have to offer little or no dole-out against the estimated R1,263 crore on the grain?s shipment as global prices have surged by around 40% since mid-June, exceeding the usually more-expensive Indian wheat, according to official and trade sources.

Trade sources said at $295 a tonne, freight on board, the Indian wheat is much cheaper than comparable global varieties, which are ruling around $325 a tonne.

An Indian official said the government wasn?t in a hurry to offer subsidies on exports in view of the soaring global prices and if bid prices in the tenders remained lower-than-expected, it might take a fresh view of the subsidy plan. According to some other government officials, export subsidy isn?t necessary now.

The Cabinet Committee on Economic Affairs last month approved subsidy on wheat exports up to two million tonne from the official reserve and set the floor price of the grain for shipment at $228 a tonne.

State-run trading firms invited bids for the exports on two separate occasions and the bid prices will be known this month.

Food minister K V Thomas has said that the government would not sell the entire two million tonne at one go in view of rising global prices, and trading firms would float multiple tenders.

The government is facing a storage crisis as official stocks have swelled to more than 80 million tonne, compared with the storage capacity of 64 million tonne.

India, the second-largest wheat grower, produced a record 93.90 million tonne of wheat in the crop year through June, leading to an all-time high procurement of around 38 million tonne and an overflowing inventory.

Meanwhile, the worst drought in 56 years in Midwest farm belt in the US has driven up global wheat and corn prices, and a weak rupee has aided the cause of domestic exporters.

Moreover, Russia will have an exportable surplus of wheat in the range of 11 million to 15 million tonne in 2012-13 depending on the final 2012 crop which was damaged by drought, Reuters said quoting a government official there, which is less than 20 million tonne the country used to ship before it temporarily banned exports in 2010 following dry spells.

The only caution, however, is that if the drought-hit regions in the US drought get some showers, global prices may fall. Better chances of rains drove down wheat futures for September delivery on the Chicago Board Of Trade by 2.4% to $8.67-1/4 a bushel on Wednesday, adding to a 2.9% fall on Tuesday.

In Europe, benchmark November milling wheat futures, too, shed 1.5% at 256.50 euros.

However, since wheat crops in the vast regions across the US and Russia have been affected, no substantial fall in prices is anticipated at this moment,

and the current fall is triggered by more by profit-taking, analysts said.

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First published on: 03-08-2012 at 01:25 IST