Global wheat prices likely to shoot up.

NEW DELHI: Global wheat consumption is set to hit a record high in 2010-11 even as production is forecast to drop because of a drought in Russia, creating conditions for a further rally in prices.

The International Grain Council (IGC), an intergovernmental organisation concerned with grain trade, has cuts its wheat production estimate for 2010-11 by 7 million tonnes to 644 million tonnes on account of the Russian shortfall and adverse weather in Western Australia. Russia’s output is estimated to drop by 25% on account of drought.

IGC has projected a record wheat consumption for the year. The agency expects the wheat consumption will go up by 2 million tonnes to 657 million tonnes.

IGC has also lowered its forecast for level of wheat stocks at the end of the 2010-11 season by 8 million tonnes to 184 million tonnes, down 13 million tonnes from a year earlier.

On August 5, when Russia first announced its temporary ban on wheat exports, wheat prices, already at a-two year high at the time, skyrocketed. However, even at the latest peak, global wheat prices remain well below the average March 2008 level of $440 per tonne, suggesting scope for further rally in prices.

India can benefit from the global situation after two bumper harvests that have seen stocks swell to over 16 million tonnes. But food inflation worries and persisting uncertainty about this kharif crop are likely to make it even more difficult for the government to lift the ban on export of wheat.

Policymakers are worried that any hurried move could re-energise food inflation that looks to be softening and has dropped to 10% for the week ended August 14 from over 20% at the beginning of the year.
The decision to remove a long-term ban on wheat exports is now likely only after early kharif grain production estimates are available next month.

The government is also sticking with the decision to continue zero import duty, as reports trickle in over rice production drop this crop season by over 15% in Punjab and Haryana and over 17% in West Bengal.

Friday’s crop sowing data at home showed acreage crossing 950 lakh hectares with all key crop coverage better than last year. Paddy acreage is at 312.42 lakh hectares. But this is clearly not enough for the government to confidently estimate a bumper harvest.

Source : economictimes.indiatimes.com