The upward journey

Good sowing of wheat in the rabi season raises hopes of a bumper crop.

The sowing of wheat in the rabi season this year is indicative of the possibility of a bumper crop.

Till December 15, 2006, an area of 232.59 lakh hectare has been brought under wheat cultivation, as against 210.63 lakh hectare in the corresponding period last year, an increase of about 10 per cent. Farmers in Madhya Pradesh and Uttar Pradesh have shifted their cultivation from oilseeds to wheat, in view of the attractive price of the commodity.

The government recently launched a Rs 841 crore wheat plan, aimed at increasing acreage by 14 lakh hectare.

Union Agriculture Minister Sharad Pawar hopes that wheat production would touch 74 million tonnes next year. So far, weather has remained favourable for the crop. Last year, the production was estimated at about 69.5 million tonnes.

This year, the government was forced to import 5.5 million tonnes of wheat, after the buffer stock touched a low of 2 million tonnes (as on April 1), as against the norm of 4 million tonnes. Procurement also fell from 14.6 million tonnes last year to 9.2 million tonnes this year.

Wheat imports, being done at zero duty at present, would be stopped from March 1, 2007. This could act as a trigger for the prices in the month of March next year.

Wheat futures for March and April delivery are currently ruling in the range of Rs 950-960 per quintal.

Prices zoom

Globally, there has been a decline in production of wheat this year.

According to the International Grains Council, this year's world wheat production is estimated at 587 million tonnes, down 31 million tonnes from last year. Ukraine, an important exporter, has already banned the export of wheat.

Domestic wheat prices are higher by about 25-30 per cent over last year. In the world market too, wheat prices shot up after India decided to import the commodity.

In February, when India invited tenders for importing wheat, the average quoted price was $178 per tonne. However, in the last import tender floated in August, the average price quoted was $229 per tonne.

The unusual increase in the price of wheat has led to flour prices rising by about 30-40 per cent in the domestic market.The retail price of flour has increased from Rs 9-10 per kg last year to Rs 14-16 per kg.

With the rise in price of wheat, commodities like maida, darra and suji have also seen an upward trend. Currently, wheat price is ruling in the range of Rs 1,100-1,200 per quintal. Experts do not see any possibility of a decline in price before March next year.

Procurement pains

While wheat production is likely to increase next year, it would be interesting to see whether the government succeeds in procuring the commodity in adequate quantity or not.

Though the government has brought about the highest ever increase of Rs 100 per quintal in the Minimum Support Price (MSP) of wheat to Rs 750, it may not be able to procure enough if the market price at that time rules significantly higher than the MSP.

This year, procurement was down, as private companies entered the markets to buy at rates higher than the MSP. The farmers ended up getting a better price this time.

This led to a depletion in stocks in the Central pool, and the government was forced to import wheat. This time round, the government may offer bonus to the farmers before the procurement season begins.