Wheat may rise 15% by Diwali

Wheat prices, which are quoting around Rs 1,050 a quintal, are set to go up by at least 10 to 15 per cent by Diwali once stocks with flour mills get exhausted and fresh demand arises. The government's failure to contract imports is also affecting the sentiment.

International wheat prices are quoted around $325 a tonne, the highest in recent times. Prices are rising because Canada, Europe and Australia have cut their crop estimates on bad weather.

The International Grains Council cut its estimate for the 2007-08 wheat crop to 607 million tonnes, while forecasting that would reach 614 million tonnes, resulting in a further stock drawdown.

It said global wheat inventories were at their lowest since 1979.

State Trading Corporation, which has again floated a tender to import wheat on behalf of the government, is expected to get offers around an average price of $380 a tonne to be delivered at Indian ports.

The government had declared earlier that it wanted to import 5 million tonnes of the grain to beef up buffer stock. This time, however, the quantity for imports has not been mentioned in the tender.

In May, the government had scrapped its 1 million tonnes wheat import tender, citing high prices.

The tender had attracted bids in the range $267-302 a tonne. But later a couple of bidders had agreed to supply about 300,000 tonnes at $263 a tonne. However, the government refused to buy wheat and scrapped the tender.

In July, the government placed orders to buy 511,000 tonnes at an average price of $325 a tonne.

It was India's second attempt this year to source wheat overseas.

The government must certainly be realising the mistakes it made in cancelling the tender in May.

Meanwhile, things are getting worse as international prices are moving up much faster than anybody's expectations.

During the procurement season, the government regulated purchases of private and multinational traders by asking them to declare purchases above 50,000 tonnes with the government.

Seven big players, including Cargill, have declared total purchases of 16.5 lakh tonnes and smaller mills and traders are expected to have purchased 10 lakh tonnes.

These stocks may last for a couple of months more and their demand along with the demand from users will come around Diwali.

"This will lead to wheat prices moving up by 10-15 per cent in the next three months," said a multinational trader.

Wheat in the Mumbai market is around Rs 1,050, which can go up to 1,200 a quintal. "Since the international market is rising fast, our market cannot remain aloof for long," said a Mumbai-based trader. Had the government not banned the futures trade, the price indications would have been available in advance.