Wheat set to scale Rs 1000 mark

Supply crunch triggered by floods; festival demand to prop up prices

Wheat prices are set to scale up to Rs 1,050 a quintal in the next one month in wholesale mandis, owing to rising festival demand, low production and disruption in supply as a result of floods.

Presently, the fair average milling quality wheat is quoted at Rs 945 a quintal in Delhi.

Spot wheat perked up in the last fortnight by Rs 44 to Rs 937.50 a quintal from Rs 892.85 a quintal in the beginning of the month. The wheat contract for August also moved in tandem, with the prices rising by Rs 31 in the last fortnight to Rs 891 from Rs 860 a tonne on August 1.

"In the first leap, the wheat prices would touch Rs 1,000 a quintal, probably this week, and would remain range-bound for some time. In the second leap, they would touch the benchmark of Rs 1,050 a quintal," a Delhi-based trader said.

"At the level of Rs 1,050 in the domestic market, imported wheat would become viable, thus luring traders to opt for imports. The supply would then overshoot the demand and prices would start declining," a Mumbai-based trader opined.

Wheat imports at $210 from Ukraine, Russia and Australia are not viable currently, as the same costs Rs 1,200 a quintal (inclusive of insurance and freight costs) at the ports in south India.

Considering about Rs 100 a quintal for transportation and miscellaneous costs from south Indian ports, the cost goes up to Rs 1,300 a quintal in the wholesale market.

This means the consumer would not get anywhere below Rs 20 a kg in the retail market, making imports costlier than the domestically available wheat, the trader added.

In addition to the higher price, the quality of imported wheat is inferior. Still, as a price-conscious country, India would continue the imports to meet the rising demand.

According to sources at Kotak Commodity Services, the government has finalised deals to import over 3.5 million tonne (mt) of wheat through three separate tenders, turning India into a net importer of wheat for the first time since 1996.

The domestic production for the marketing year 2006-07 is estimated at 68 mt as against 72 mt in 2005-06. Unseasonal rains just before harvest in primary production areas, including MP and Punjab, resulted in substantial damage to the standing crop and lowering the possibility of a good produce this year.

Moreover, the government wheat stocks were steadily declining since 2001-02, from 26.04 mt to just 2.11 mt at the end of the MY05-06, the lowest in a decade.