A new competitor has suddenly emerged in wheat markets.
India began exporting the crop in September after the government lifted a three-year export ban.
The U.S. Department of Agriculture expects India to ship 2.5 million tonnes of wheat in 2012-13 as it tries to reduce record stocks that are poorly protected from the elements and are in danger of rotting.
However, a CWB analyst doubts the exports will hurt global wheat prices.
A recent U.S. agricultural attaché report forecasts 1.8 million tonnes of Indian exports but said shipments could be significantly higher if the Indian government starts subsidizing exports or the rupee further depreciates against the U.S. dollar.
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The attaché report estimates that the government’s food grain stocks reached a record 81.5 million tonnes as of June 1, including a record 49 million tonnes of wheat. The government is expected to buy 36 million tonnes of the crop during the April to July procurement season, which would be 27 percent more than last year’s purchases.
Government stockpiles grew because of a record 91 million tonne wheat harvest earlier this year and a government minimum support price that is well above the weak domestic market price for the crop.
However, the storage capacity to house that grain is woefully inadequate.
According to the attaché report, the total storage space available to government agencies is 65 to 66 million tonnes, which leaves 15 to 16 million tonnes of surplus wheat to be kept in temporary storage in open yards under plastic tarps. Rice is stored in government warehouses.
A Reuters story suggested 19 million tonnes of wheat are exposed to the elements and subject to damage from insects, pests, theft and spoilage. It will be highly vulnerable to the monsoon rains that arrive this month.
A government commission formed to develop a strategy for handling the surplus has recommended offloading 10 million tonnes through the Public Distribution System, three million tonnes on the open market to millers and traders and two million tonnes through exports.
Neil Townsend, the CWB’s director of market research, isn’t too concerned about India’s sudden entry into the wheat market.
“I don’t really see it as being a big threat to the world price structure, just because I think there’s going to be a market for that lower quality wheat.”
The USDA expects 2012-13 shipments will be down 8.5 million tonnes in the former Soviet Union, 2.8 million tonnes in the European Union and 3.9 million tonnes in Argentina compared to the previous year.
The Australian Bureau of Agricultural and Resource Economics and Sciences is forecasting 24.1 million tonnes of wheat production in that country, down from 29.5 million tonnes last year.
So a rare offering of Indian exports might not be a bad thing.
“There does need to be a bit of wheat come out of the woodwork,” said Townsend.
India’s wheat quality is lower than what is grown in Canada and isn’t subject to the same level of segregation and quality assurance. It is sold to places like Bangladesh, Nepal, the Middle East and East Africa.
“They’re not exactly the premium wheat buyers. It’s going to be the bottom feeders who want some cheap wheat,” said Townsend.
