Unfortunate Timing Of India's Decision To Export Wheat.

Competition in the wheat market is getting tougher. India's decision to export wheat after a four-year ban, will not be a revolutionary success as such, since the resurfacing of Russian exports is expected with cheaper grain. This announcement has  already turned into a nightmare for top suppliers, namely the United States and Australia.

India, being the world's second-largest producer of wheat, has unleashed 1 million tonnes of common rice exports for the first time since 2008, thereby lifting a four-year old ban on wheat sales, in an effort to balance the management of overflowing hoardings of grain stocks. This is a step taken to combat the suffocatingly high levels of inflation.

Experts state that the timing of the decision taken by India is unfateful, given that the world's third largest producer, Russia, entered the market in June 2011, selling cargoes following a year of drought.

Analysts opine that this would make it almost impossible for Indian wheat to find buyers, particularly as the Indian wheat will cost around $300 per tonne against the roughly $244 cost of Russia. At such values, it will be a problem for India to find buyers.

Acquiring innumerous tenders over a short time span, exporters from Russia and Ukraine have sold  more than 400,000 tonnes of wheat to Jordan, Egypt and Tunisia. The sale of 75,000 tonnes of feed wheat to the Philippines, has been reported in July 2011 by traders. This amount is the first Black Sea sale into Asia since the drought of 2010 had curtailed supplies.

Russia is offering competitive prices. Egypt, the world's biggest wheat importer, bought 180,000 tonnes of Russian wheat last week at $243.50-$244.50 a tonne, free on board, which analysts said was around $40 lower than offers from Europe and the United States. Upon contrast with the Indian wheat, the prices are $295 to $300 a tonne.

Due to the non-competitive prices, India has "missed the bus". At prevalent prices, wheat exports will not be viable without a subsidy and a subsidy is clearly out of question.

In 2007, the exports were capped, to advance domestic supplies after natural conditons curtailed output, forcing the country to import wheat at unimaginably high prices. But reserves have surged since, with bumper production for five straight years.

Wheat production is forecast at a record 84.27 million tonnes in 2011, compared to an all-time high output of 80.80 million tonnes in 2010.

Overflowing warehouses have led the government to store stocks of wheat under tarpaulin, causing the grain to rot and decay.

In July 2011, India's wheat stocked at government warehouses was 37.1 million tonnes, whereas its target was close to 17.1 million. Rice inventory was 26.8 million tonnes against a target of 9.8 million tonnes.

Earlier in 2011, Pakistan took advantage of a global supply squeeze resulting from Russia's absence from the market, and resumed wheat exports in January for the first time in three years. It sold nearly 1.8 million tonnes of wheat by June, before being overthrown out of the wheat market by tremendous competition from Russia.

Owing to the relaxed export restrictions in Black Sea, it is not the right time for India to be competitive in the market. In spite of its inundating grain bins, India kept constraints on wheat exports as the government fought to control the steep food inflation.

Food inflation rose at around 20% at the end of 2009 and stayed mostly in the high double digits before commencing a relaxation from March 2011.

Rice Market Scenario:

In the rice market, India can play a more significant part to soften prices if supply is in excess. Despite the Indian rice market being adequately supplied, Thai prices have started elevating in recently, as the new government in Bangkok has guaranteed higher prices to farmers.

Experts are of the opinion that if Thailand embarks on the policy of rice sales, and retreats for a few months, it shall be a good opportunity for India to export with the quantum it has.

Benchmark 100% B grade Thai white rice has soared up almost 4% from June 2011, due to hoarding because of speculation about aggressive intrusion by the new government. Traders in Bangkok said relaxation of a ban on Indian rice exports helped restrain Thai prices down this week on hopes of more exports being outflowed by India.

One million tonnes is not so big as to have a huge impact right now, but what we fear is that India will allow another one or two million tonnes subsequently.

Source : iitrade.ac.in