Wheat prices were in a downtrend in Q1 2019 due to huge stockpiles and a bumper crop for the third year in a row. Since the beginning of the year, prices of wheat at various spot markets have declined 12-15 percent. In the futures market, too, prices fell below Rs 1,800.
Food Corporation of India (FCI) data showed wheat stocks of 16.99 million tonnes as on April 1, 2019 which is more than double the strategic and buffer requirement. Harvesting of wheat is going on in full swing and physical markets are flooded with huge supplies.
In the last 2-3 trading sessions, however, prices of wheat have recovered on expectations that the government might soon, to curb imports, increase customs duty on wheat from 30 percent to 40 percent. Although imports are not viable at the prevailing rates, they may turn attractive if the domestic price of wheat rises. India had imported 5.75 million tonnes of wheat in FY16-17 and 1.2 million tonnes in FY17-18.
Government procurement, too, has commenced and this restricted a further fall in prices this month. The government has set a procurement target of 35.7 million tonnes of wheat in the marketing year 2019-20 (Apr-Mar) amid indications of record production.
Last year, the government procured 35.8 million tonnes, against a target of 32 million. Also, the government is likely to further hike the open-market-sale base price so as to encourage private operators to procure wheat directly from the market.
On the production front, the government has pegged wheat output slightly lower at 99.12 million tonnes this year compared to last year’s 99.7 million tonnes. This is still the second highest on record. However, recent rains in North India have damaged wheat crops and thus output may be revised lower.
As far as prices are concerned, wheat is a close follower of seasonal price patterns. Accordingly, wheat prices are under downward pressure from January to March as the government releases stocks from its central pool before the new-season procurement commences. Prices start recovering from April and are firm till May. Despite arrival pressures, prices remain firm as government procurement starts in full swing.
This year, too, we expect the seasonal trend to continue in wheat and, thus, expect prices to recover in the short term.
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