CBOT wheat futures are now cheaper than Indian wheat

Global market prices fell 6.5% last week; However, domestic prices continue to rise

September and December wheat futures on the Chicago Board of Trade (CBOT), which is used as the reference rate in the global grain market, are currently trading below the grain price in India after falling 6.5 per cent last week.

Domestic wheat prices are near record highs, while global commodity prices are hovering near 52-week lows. Typically, Indian wheat is sold at a discount in the global wheat market, which also includes CBOT wheat futures.

According to data from the Ministry of Agriculture and Farmers Welfare, the average weighted modal price (the rate at which most trade takes place) stood at Rs 22,840 per tonne on August 20.

On August 19, CBOT September futures ended at $7.55 per bushel (₹22,160 per tonne), while December futures closed at $7.72 (₹22,665). In the global spot market, wheat prices are near one-year lows, though they are higher than the Indian rate.

2 causes of global decline

According to the International Grain Council, Europe’s wheat (French grade) is $323 a tonne, while US soft red winter wheat costs $318 free-on-board.

“In India, wheat is currently available at Rs 24,000-25,000 per tonne for reasonable average quality. Pramod Kumar, vice-president, Roller Flour Mills Federation of India (RFMFI), said globally, prices have come down as Russia has started selling wheat.

There are two reasons for the fall in wheat prices globally. The first reason is the UN brokerage deal signed on 22 July between Ukraine and Russia to allow the export of food items to the Black Sea region.

Since then more than 5.6 lakh tonnes of grain has flown out, although wheat shipments are barely 50,000 tonnes. At least 27 ships have left the region, with another seven loading at three ports. “Wheat from the Black Sea region is being supplied at $385 a tonne plus freight,” Kumar said.

fear of recession

The second reason is the worldwide sell-off by speculators and funds wary of the global recession. According to the Food Policy Research Institute, the sell-off is a cause for concern because it comes with a fall in inventory.

“The fall in CBOT will not have any impact on Indian wheat prices. We have to cover freight and insurance. Also, if the Center has to allow duty free wheat, then by when will the window open? It may allow such imports only for a limited period as next year’s crop will be ready by then. At most, it may give a limited duration of 50-day window,” said trade analyst S Chandrasekaran.

Following the concerns raised by RMFFI on rising wheat prices, Food Secretary Sudhanshu Pandey had said that the Center is looking at all options – reducing the import duty of wheat from the existing 40 per cent till the stock declaration order is implemented.

Retail prices up 18% year-on-year

“Unfortunately, nothing has been done so far to control the prices, which are rising daily,” said RFMFI’s Kumar.

According to consumer affairs ministry data, retail wheat prices are at a record high of Rs 30.72 per kg and atta (wheat flour prices) are trading at Rs 35.24. Both the prices are 18 per cent higher than the same period a year ago.

The country’s heat wave during March-April pushed wheat prices higher on lower production than expected and increased demand for exports at the start of the season following the Russian-Ukraine conflict.

Initially, the production of wheat was estimated to be 111.31 million tonnes, before it was reduced to 106.34 million tonnes. In its fourth advance estimate, the agriculture ministry increased production to 106.84 million tonnes. The US Department of Agriculture has also raised the Indian wheat production forecast for this year to 104 million tonnes this month from 99 million tonnes last month. Bids for Tenders

Trade sources said they were skeptical of the wheat production figures as the supply of food grains was short. “It could be less than 100 million tonnes,” said a trader on condition of anonymity.

drop in bids

“There is no wheat available with the farmers. Also, the Centre’s decision to replace wheat with rice in the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) in some states is also putting pressure on grains,” Kumar said.

Rajesh Jain Pahadia, a Delhi-based exporter, said that while Indian wheat prices are rising, the bids in import tenders floated by some countries have started falling. Last week, Jordan’s Ministry of Industry and Trade (MIT) decided to buy 60,000 tonnes of wheat from US food major Cargill at $385.50 a tonne. Wheat will be delivered in the first half of February 2023, he said.

On July 26, MIT finalized another tender from Cargill to purchase a similar tender at $405.75, which will be shipped in the second half of December this year. During the same time, Bangladesh finalized a tender that closed on 14 July and the winning bid was $476.38 per tonne.

“If the current trend of declining global prices continues, domestic wheat will be under pressure as imports will become viable,” Chandrasekaran said.

export demand

A section of businessmen said that the reduction in import duty by the Center may bring down domestic prices.

The situation is in contrast to March-April this year when India was expected to export more than 10 million tonnes of wheat. Indian wheat was in demand in the wake of Ukraine war, but due to unexpected fall in production, the Center banned the export of the grain from May 13.

As of May 13, India had shipped over 2 million tonnes of wheat with 1.4 million tonnes being exported in April. According to the Agricultural and Processed Food Products Export Development Authority data, 3.33 million tonnes of wheat was exported during April-June, fetching Rs 8,271.60 crore.

Though the Center banned exports, it allowed shipments for which irrevocable letters of credit were opened before the ban was imposed.

Published on

21 August 2022


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