India hikes wheat auction price; move could limit exports: sources

New Delhi — India's domestic wheat prices are expected to rise after the government increased auction prices for several categories of the grain available in state-held inventory. The move is seen limiting wheat shipments out of the country, sources told S&P Global Platts.

The government has set the auction of good-quality wheat procured in 2021-22 marketing season at Rupees 21,500/mt ($293/mt), according to a release from the Food Corporation of India, or FCI.

India's wheat marketing season runs from April through March.

In the 2020-21 marketing season, the government sold wheat slightly lower than the current prices, at Rupees 21,350/mt.

The hike in fair-quality wheat is seen pushing up export prices of the grain, as most traders will turn to these auctions to purchase while most benchmark markets are shut due to COVID-19 related restrictions.

"The government has raised the selling price for wheat in its stock. With all the major markets shut, most traders will have to buy from them, and the wheat will become expensive," Bangalore-based wheat trader Pramod Kumar said.

The rise in the domestic price might also limit supply available for exports, he added.

India, the world's second-largest wheat producer, is in a position to export significant quantities after several years at a time when global inventories are at two-year lows.

In 2020-21, India exported 2.1 million mt of wheat from just 219,690 mt the previous year, data from India's Agricultural & Food Processed Export Development Authority showed.

Apart from fair-quality wheat, the government has also increased the auction price for poor-quality wheat in its stocks. It will sell the poor-quality wheat at Rupees 20,000/mt in the current marketing year against Rupees 18,480/mt in the prior year.

"With the prices of all categories being increased and most markets shut in major producing states the domestic prices of the food grain are seen rising and it will impact the exports," Delhi-based exporter Anand Goyal said.

The government is planning to sell about 7.5 million mt through the auctions against only 2.5 million mt sold last year.

"If the government sells the quantity earmarked then also it may not increase the availability of supply as the wheat will be expensive," Goyal added.

Another reason for the expected rise in the export price would be a spike in government procurement. So far, FCI has bought 34.2 million mt against 25.3 million mt in the same period last year, according to sources.

The Indian government procures food grains, particularly wheat and rice, to support farmers and provide grains at subsidized prices under different social security programs.

The FCI is the government's agency for procurement, disbursal and maintaining government inventories of food grains.

Indian traders are in talks to make export deals with counterparts in Bangladesh and Myanmar for the current marketing year, trade sources said.

"The government's stock cannot be exported," a trade source said. "The rise in government stocks may limit the supply of the grain and push up prices in the global markets. It might make it difficult to export at high prices," the source added.