Wheat prices soften after export ban, but high demand may limit downside

Traders say market is still biased towards demand; while this could come as some relief to the farmers, a major price spike in the months ahead seems unlikely

Wheat prices in the domestic market, which have already softened by Rs 100-200 per quintal following the export ban late Friday might drop by few more rupees before stabilising near the Minimum Support Price (MSP) of Rs 2015 per quintal, traders and market sources said.

They said a big downside from the MSP levels looks unlikely at this point because demand and supply matrix in the market still favour the former.

This could come as some relief to farmers who are holding on to their stocks in anticipation of a big jump in prices in the coming months. However, the spike will be missing.

“The all average price of wheat which has come down by Rs 100-200 per quintal since Saturday will further ease by another Rs 50-100 per quintal but won’t drop much below the MSP as stocks are anyway less in the market, while production too is not expected to be much above 100 million tonnes,” Rahul Chauhan, a Commodity Analyst at iGrain India told Business Standard.

Chauhan said in the absence of open market sale by the Food Corporation of India (which it stops during the procurement months), flour mill owners will have to depend on the open market to meet their demand.

Wheat prices in Delhi markets have dropped to around Rs 2235-2250 per quintal on Saturday after exports were banned, while those in Madhya Pradesh were selling at Rs 2220-2230 per quintal.

Prior to the ban, wheat prices in Delhi were quoted at around Rs 2340 per quintal. In the ports, Indian wheat was being quoted at Rs 2575-2610 per quintal.

Sunday, most wholesale markets and mandis across the country were closed.
 

“There might be further softening of prices in the coming days, but downside seems limited,” another Indore-based trader said.

In case, atta (wheat flour), traders said that prices will go down by Rs 2-5 per kg in the retail markets for both packaged and loose varieties. (see chart)

“Most bulk loose atta players were absorbing the increase in wheat prices and not passing on to the consumers in anticipation of some action from the government, while packaged atta makers had already pushed up their prices. Now that the government has banned exports, we are relieved,” a senior member of the roller flour millers’ association said.

Meanwhile, some traders complained that the Centre acted in panic while banning exports without closing all its options to boost falling inventories.

They said that an old unclaimed stock of around 3 million tonnes of the wheat lying with Madhya Pradesh could have been included in the Central pool to boost inventories, thus negating the knee-jerk reaction.

The wheat was procured by Madhya Pradesh for Central pool few years back, but could not be deposited in the same because of a rule which says that Centre will pay MSP for only that much grain which is purchased by a state on its behalf as it is required for meeting public distribution needs.

The three million tonnes was bought after paying a price which was higher than the MSP a few years back.

Since then the stock has been lying with the state government and various attempts by Madhya Pradesh to liquidate the same had failed.

Now, the same stock could have come as a boon for the Centre and immediately boosted its procurement to 21 million tonnes from the current 18 million tonnes.

With stocks of 21-22 million tonnes, the Centre could have comfortably rode over the tight demand-supply matrix of Fy-23 without taking the extreme step of banning exports, given that it already has another 19 million tonnes with it at the start of the season, traders said.