India: Wheat Market Equation
07-Dec-2024 02:04 PM
India: Wheat Market Equation
The wheat market this year is facing a complex and unstable situation, with significant implications on production, consumption, stock levels, and government policies. The following points explain the current dynamics of the wheat market:
1. Production and Stock Situation
- Production: The estimated wheat production for the 2023-24 season is expected to reach 1,100 lakh tons, a slight increase from 1,040 lakh tons in the 2022-23 season. Although production had declined over the past three years, there has been a modest recovery this year.
- Carryover Stocks: The carryover stock this year has decreased from 195 lakh tons to 95 lakh tons, indicating a shortage. As of November 13, 2024, the wheat stock in the central pool stands at 217.8 lakh tons, slightly higher than the previous year’s stock of 218.76 lakh tons.
Stock in Central Pool (in Lakh Tons):
- November 13, 2024: 217.8
- November 1, 2024: 222.64
- November 1, 2023: 218.76
- November 1, 2022: 210.46
2. Consumption and Supply
- Consumption: The estimated wheat consumption for the 2023-24 season is 108.65 lakh tons, which is nearly the same as the previous year’s consumption of 109 lakh tons. There has been no significant change in demand.
- Supply: Total wheat supply is estimated at 1,195.9 lakh tons, including production, carryover stock, and government sales (through OMSS and other schemes). Despite this supply, there is a noticeable shortage of stock, and prices have been rising.
3. Government Schemes and OMSS
- OMSS Sales: The government has announced the sale of 25 lakh tons of wheat under the OMSS (Open Market Sale Scheme) till March 2025. The reserve price for FAQ wheat is set at ₹2,325 per quintal, and for URS wheat, it is ₹2,300 per quintal. In the most recent tender, 98,700 tons of wheat were sold, with Assam bidding the highest at ₹3,219 per quintal.
- Highest Bids by State: Assam (₹3,219), Punjab (₹3,160), Madhya Pradesh (₹2,775), Uttar Pradesh (₹2,931), Delhi (₹2,981), Haryana (₹3,020)
-OMSS Scheme: Each bidder is allowed a maximum of 100 metric tons per week, a limit considered low by industry experts. If this bidding quantity does not change, prices are likely to rise due to increased competition.
-Stock Limits: On September 14, the government reduced stock limits for traders and wholesalers from 3,000 to 2,000 metric tons, and for millers/processors, the limit was reduced from 70% to 60% of their milling capacity. When stock limits were imposed, Delhi wheat prices were ₹2,840 per quintal, but prices have continued to rise since then. By December 5, wheat prices in Delhi reached ₹3,100-3,120 per quintal. After a recent tender sale, prices came down slightly to ₹3,050, and the market opened on December 7 with no major changes.
4. Bharat Brand Atta
The Bharat Atta Scheme has set a maximum retail price (MRP) of ₹27.5 per kilogram until June 2024. The wheat allocation under this scheme has been increased. Between October 1, 2023, and June 2024, 15.2 lakh tons of atta have been sold. This scheme has helped stabilize wheat demand by providing affordable flour to consumers.
5. Wheat Imports
India imposes a 44% duty on wheat imports, making the cost of imported wheat significantly higher. The government has repeatedly ignored calls to open up imports, citing domestic production concerns. Therefore, the likelihood of any significant policy change regarding wheat imports in the near future remains low.
6. Sowing and Weather Impact
-Sowing: Wheat sowing has reached 200 lakh hectares, which is 12.38 lakh hectares more than the previous season. However, pest attacks in some states have led to re-sowing in certain areas.
-Weather: The current temperature is higher than average, and there has been no significant rainfall in wheat-producing states. If temperatures do not drop in the coming week, the growth of wheat plants could be affected, which may eventually reduce productivity.
7. Market Outlook
- Production Outlook: If the weather remains favorable, wheat production could reach record levels. However, any unexpected weather changes or natural calamities could disrupt production.
- Price Fluctuations: Given the imbalance between supply and demand, stock shortages, and government interventions, wheat prices are likely to remain volatile. I-Grain India predicts that prices could stabilize at a certain level, but they may rise again once the new crop enters the market.
Conclusion:
The wheat market is currently in a state of instability, with challenges in production, supply, and stock management. The ongoing shortage of stock, rising prices, and government sales schemes have created an uncertain market environment. In the coming months, weather conditions and government decisions will likely play a crucial role in determining the direction of the wheat market.