Output fears, demand keep wheat buoyant

The rally in wheat prices is likely to continue for at least a week, traders and analysts said.

This is due to fears of lower-than-expected output this year, good buying by multinational companies, alleged hoarding by stockists and rampant speculation, they said.

Traders and analysts expect wheat futures to remain volatile.

"Traditionally, by this time around, the Uttar Pradesh crop flushes south Indian markets. But this year, this has not happened and the situation may warrant imports," said Rishi Goel, a city-based trader.

Prices have been shooting up for almost a month now and the market expects the rally to continue.

"While a slight technical correction during the period is likely on profit-taking, overall prices will rise," said Rajini Panicker, an analyst with Refco Commodities.

Currently, multinationals like ITC Agribusiness (India), Cargill Foods, and Hindustan Lever and stockists are believed to be hoarding wheat, said a dealer with Anand Rathi Securities.

This has pushed up prices to touch a peak of Rs 800-825 per 100 kg, he said. Also, the price rise has led the roller millers to demand import of duty-free wheat, as the production this year is likely to below consumption.

"This is the harvest time and prices are usually down. However, this time around prices seem to be rising like anything and will end up affecting our business," said Rakesh Jain, a senior official of Rajdhani Atta.

"Local brands like ours (Rajdhani) seem to be fighting a losing battle against the multinationals who have the power of money behind them. They are able to stock large quantities of grain and maintain huge advertising budgets."

ITC Agribusiness chief executive officer S Sivakumar, however, refuted these allegations. "As of today, total purchase by the big companies put together is not more that 2 per cent of total output," he said.

"Farmer is holding the crop in the wake of rising prices, expecting to get a better price. Prices are rising on a likely fall in crop."

Imports will be detrimental to farmers' interest and are not even required in the current scenario, Sivakumar said.

While the US Department of Agriculture has estimated India's annual consumption at 75 million tonne, multinational companies peg consumption at 65 million tonne.

The government estimates wheat crop output with the quantum of arrivals and its procurement. As on May 18, procurement in the current rabi season was 7 per cent lower at 14.6 million tonne.

"Government's wheat procurement is unlikely to meet its target of 1.7 million tonne at the current pace," said a dealer with Anand Rathi Securities.

While officially the crop estimate for the year-to-June has not been revised from 73 million tonne, market has lowered its estimate to 66 million tonne.

Sivakumar pegged the wheat output around 69 million tonne. Not only crop output, but also yield may be affected, traders said.

This is due to bad weather""higher temperature during the sowing November-December period and untimely rains in February-March""and brown rust fungus affecting the crop in Punjab.

Market players peg the crop in Punjab, Haryana and Uttar Pradesh to be 10-15 per cent lower year-on-year, while in Madhya Pradesh the yield may be 5 per cent higher, traders said.

"However, the rise in MP is not enough to offset the losses in other states, especially UP and Punjab," Goel said.