India to sell/export 2 million tons FCI wheat, at $300/mt —Food Minister 8th Aug 2013. But no takers.

Tejinder Narang

There will be no takers for above tonnage of FCI wheat for export through STC/MMTC/PEC  at floor price of $300 fob (Rs 18300—1$=Rs 61).  Open market wheat is available at $285fob kandla/Mundra but sale is nil.

 When Black sea wheat prices of comparable quality have plunged to $220fob (Rs.13420) for Sep 2013 and are tapering down, fixing any floor price is crass illiteracy of market mechanism. Rupee deprecation of about 12% is not taken into consideration which an accountant would have done. The heavy cost of carry of $100/mt per annum is not debited as a normal managerial exercise for assessing the financial damage.  Wheat stored in CAP warehouses is exposed to environmental attrition and is of “as is where is quality” has been well declared by FCI  in the domestic sale tenders which flopped in July 2013.

 Past performance of selling at average $305 is irrelevant at this point of time. Last year weather was supportive of higher values. This year weather is supportive of lower values.

India, nevertheless continues to reaffirm surpluses of about 21 million tons as of August2013. It  will have to bend down for pricing. The more the Govt delays price adjustments the more will be the losses especially when Brazilian corn is down to $180fob. Wheat prices are also related to corn prices because the two can be swapped for feed usage.

The option is to recover the salvage cost at about $200- $225fob /mt or let the sunk cost of $333/mt go down the drain. With CAD likely to touch 6% of GDP by December 2103, every dollar earned is worth the grain. International traders are not dumb and will work only when price parity prevails.

It is time to get rid of mind set of procuring- hoarding-not selling-not exporting- wasting - rotting cycle even for the benefit of Food Security which requires distribution of good grains and not deteriorated cereals.