(Wheat prices will consolidate…)
By Naveen Mathur
Wheat is among the three most prominent cereals grown in the world. It has a special place in the Indian economy because of its significance in food security, trade, industry and agriculture.
The country has witnessed a substantial change in the past 4-5 decades, with the overall wheat production increasing at a compounded annual growth rate (CAGR) of 4.22% during 1960-2010. The share of wheat in the Indian foodgrain production is around 35.5%, and comprises about 22% of the total area under food grains.
Globally, wheat production has grown at a CAGR of 1.47% from 583 million tonnes in 2000-1 to over 694 million tonnes in 2011-12 mainly on account of a sharp rise in production in Russia, Australia, Kazakhstan and Ukraine.
Though China and India are the top two wheat producing countries, accounting for over 30% share in world production, the global wheat markets are mainly influenced by the changes in the demand-supply fundamentals of the top exporting countries like the US, Australia, Russia and Canada, which accounted for over 60% share in the world wheat export of 150 million tonnes in the 2011-12 season.
Meanwhile, the world wheat consumption has increased by 17% in the past decade and is 689 million tonnes in 2011-12. The top two producers are also the major consumers of wheat and, thus, have a very small presence in the world trade.
In India, wheat is grown as a rabi or winter crop, which is sown in October-December and harvested in March-May. The Indian wheat production has surged by around 34% in a decade and stands at 93.9 million tonnes in 2011-12.
The country has witnessed a sixth consecutive year of record high wheat production in 2011-12 on account of 11% rise in area under cultivation (29.50 million hectares in 2011-12) and 22% rise in yield (3,183 kg per hectare in 2011-12) in the past six years.
Wheat acreage has risen mainly on account of a substantial rise in the minimum support price (MSP), which has almost doubled in the past six years to Rs 1,285 per quintal. The domestic consumption of wheat stands at 82-84 million tonnes.
The government plays a significant role in ensuring food security and procures wheat mainly through the Food Corporation of India ( FCI) and other associated state agencies for distributing to consumers, particularly the vulnerable section of the society. In 2011-12, the government procured 38 million tonnes, which is almost 40% of the total output.
India has a record high stock of wheat at 50 million tonnes as on 1 July 2012, against a buffer norm of 20 million tonnes. Considering the high amount of stocks, the government lifted the ban on exports last year.
However, the uncompetitive Indian export quotes compared with those of other countries made its wheat unattractive. The surplus wheat in the domestic market has resulted in the downside pressure on prices during the past year.
Wheat prices in the global markets have witnessed a sharp rebound in the past month due to the adverse weather in Russia and reduced planting of the spring wheat for 2012 in the US. Given the lower supplies from these two exporting countries, India has a good opportunity to export wheat. This has led the NCDEX Wheat futures to surge by 28% since 20 June 2012.
If weather conditions become favourable in the major producing and exporting nations, the prices may consolidate as the global wheat stock is sufficient to meet the demand. The Indian wheat may stabilise as its export volumes will depend on the competitiveness of wheat. In the medium term, no major upside is expected as India has record high stocks of wheat to meet the domestic and export demand.
The writer is Associate Director, Commodities & Currencies, Angel Broking