India is potentially looking to introduce certain measures to contain soaring domestic wheat prices, an indication the country could enter global wheat markets as a buyer in a move that could further tighten supplies and boost FOB prices at key global exporters, sources told S&P Global Commodity Insights Aug. 4.
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While there was no official confirmation about the measures, trade bodies have been meeting with the government to find ways to tame prices, S&P Global has learned.
Among the measures the government is mulling include a reduction in import duty or imposition of stock holding limits to ensure adequate supplies and control prices.
As of Aug. 4, domestic prices have increased nearly 12% on the month to Rupees 26,000-27,500/mt ($326-$345/mt) amid dwindling supplies.
The potential development could mark a significant U-turn from a few months ago, when India said it would be able to export close to 10 million mt wheat in marketing year 2022-23 (April-March).
India's move was aimed to capture global wheat markets in the absence of Black Sea wheat after the Russia-Ukraine conflict blocked huge volumes of the crop.
However, a decline in yields forced the government to ban exports to maintain domestic supply.
India reduced its MY 2022-23 wheat output forecast by 5 million mt to 106.4 million mt, down nearly 3% on the year, according to data from the Ministry of Agriculture.
Though domestic prices had declined after exports were banned May 13, prices have increased sharply in the past few weeks as farmers offloaded most of their stocks. The fresh crop had reached markets in April and usually lasts till mid-July.
However, trade participants said a reduction in import duty might not be able to increase supplies in the domestic market. India currently levies a 40% duty on wheat imports.
Cost and freight prices of mill-quality wheat imports were around Rupees 30,000/mt, higher than domestic wheat prices, according to trade participants.
"Currently, a reduction in import duty will not be much helpful as cost and freight charges only are higher than the domestic prices. Global wheat prices have increased sharply over the past year due to global supply shortages and the war between Russia-Ukraine," a wheat trader based in Delhi said.
Global wheat prices have gained 30%-35% year on year as of Aug. 3, according to Platts assessments from S&P Global.
Stock holding limits under proposal
The government is also looking at imposing stock limits in a bid to discourage hoarding of the food grain.
Traders had filled up their inventories in April-May when the fresh crop arrived, in anticipation of a bumper export season amid global tightness.
"Most of the traders had been holding onto their stocks as they are looking at attractive prices," a miller based in Indore said.
The central government may look at imposing stock holding limits to force local inventories to offload their stocks and augment supplies.
It is also considering liquidating stocks that are usually earmarked for several social welfare programs while maintaining buffer requirements.
However, it seems unlikely that the government may be able to offer wheat from its own stocks as procurement was a record low this year, owing to record private purchases.
The government had procured 18.8 million mt wheat in MY 2022-23, sharply down from 43.3 million mt bought in MY 2021-22.
With limited procurement, the government has discontinued its regular program -- called Open Market Sales Scheme -- to supply food through public distribution system and meet buffer stock requirements.
As of July 1, the government had 28.5 million mt wheat in its inventories, against 27.6 million mt of buffer requirements.
In MY 2022-23, India had contracted to export around 4.5 million mt wheat before the ban came in, and has exported around 3.5 million mt so far.