Sunday, December 7, 2014




Wheat prices recovering--- Government can ship out some stocks.
Tejinder Narang
If one glances through media reports on agro commodities of last six months, large export sales by USA,  Brazil, Argentina, Russia, Ukraine, France, Romania, Australia of wheat, soy, soymeal, corn, sugar can be seen. India is conspicuous by its absence.  The year 2014-15 is annus horribilis for Indian agro exports. The accompanying chart captures all commodities in negative zone— soymeal (-87%), corn (-67%), all oilseeds extractions (-41%), wheat (-30%), sugar (-17%), at this point of time. Except rice, all exportable commodities are languishing for price parity. Estimated export of all Indian cereals/meals was about 24 million tons in2013-14. It may not exceed 16-17 million tons in 2014-15 with rice alone contributing 10 mill tons. A 30% shortfall in quantitative terms in agro sector is foreseen as of now. It is a nightmare for all traders/ exporters/policymakers who revelled last year on India’s export competitiveness.
Fall in crude price from $115 (June2014) to $70 per barrel may be Divine intervention for India’s CAD but it will influence cuts in bio-diesel/ethanol production.   Edible oil prices will plunge more. That will be extremely bearish for soy, corn, sugar.  India continues to rely upon the current yield pattern of soy and corn of 1metric ton and 2.5 metric tons per ha respectively. The impact of currency depreciation of Black sea / South American countries and falling oil prices exports will compel that Indian agro exports become a trickle.
 The challenge is ---whether India wants to be a marginal player or have a permanent presence in international markets and whether we want our farm economy as a world class competitive business or high cost non- remunerative activity.
World soy and corn prices are flexible (can withstand high volatility) because of high yields attained through hybrid and GMO technologies to which India largely remains insulated. For example India has a crushing capacity of 80000mt/day and that requires 24 million tons soybeans annually (300 working days) while our current production hovers at 11-12 million tons in the best years.GM soy yields about 3mt/ha. GM corn gives 5mt-10mt/ha. Application of the latest technology is the only viable strategy where we can triple our output. If GM crops are environmentally safe for US/Brazil/Argentina and if China is abundantly using them, why our policymakers cannot accelerate the process of their introduction?
The Government though has settled issue of permanent peace clause on public stock holdings at WTO, but export subsidies remain under prohibited category.  Large public stocks alone are not the only factor responsible for trade distortion.  Take the case of steep depreciation in currencies (30%-40%) of Russia/Ukraine triggered by sanctions and countersanctions due to geo-political convulsions which have also distorted world markets of wheat, corn, soy, edible oils etc. There should be a provision at WTO for calibrated subsidization of exports at the absolute discretion of any affected Government when markets are destabilized by hegemonies of powerful nations or a group of nations. Today Indian trade is looking for weather related problems in other parts of the world-- with a prayer of price parity—and also hoping that strong dollar with some imminent depreciation in rupee will help.   Since markets are dynamic and not static, only optimism lets the trade survive.
Recently Bangladesh Government received wheat offers of $270 pmt landed at Chittagong from Black Sea/France.  Inference being that international wheat prices is $225 pmtfob (excluding freight $45pmt) whereas Indian wheat from open market will cost about $275 fob Kandla. This is partly attributable to excessive procurement by the Government and squeezing market availability, while the Government is hoarding about 10 million tons of extra grains at taxpayers cost.
World’s wheat prices are showing signs of recovery of about 6%-7% since last week and if Food Ministry takes initiative of commencing short term tendered offerings in next four months, 2-3 million tens of “milling” wheat may be shipped out basis last year nominal MEP of $260 to Mid-East and Africa. (Australian wheat is at $270 fob.)
States Governments like Karnataka, Andhra Pradesh, Madhya Pradesh, Telengana etc have arbitrarily intervened for procurement of Corn at MSP –above the market price. This has not only affected lower prices to poultry industry but viability of any limited exports has also diminished.  Latin American/Black sea corn is at $180 pmt fob, while Indian corn costs $2I5 fob.
Indian Soymeal is offered at $480 pmt fob with no takers vs $430-$440 pmt fob of Brazil/Argentina.  Market players believe that India’s high soybean prices are the result of some select players concluding soymeal business with Iran, under rupee payment well above the prevailing market—around $700 pmt last year.  Farmers have tasted blood and acquired financial muscle to hold on to beans at the cost of starving crushing capacity. Traditional markets (Mid-East, Far-East and EU) of soymeal remain unserved and lost to competing origins. Pro-rata edible oil is unavailable domestically, thus pushing for higher imports of oil—currently about 12 million tons per annum. Industry has pleaded Government for hiking import duty on edible oil to protect their interest from cheaper imported oil versus expensive oil crushed locally!!
Brazilian Raw sugar is so cheap that it is selling at 90c/lb or $20 pmt discount to New York ICE futures.  Landed price of Brazilian raw sugar in UAE will be around $365 vs about $415 from India. The viability of Indian business depends upon Rs3300 pmt ($53) marketing subsidy by the Government which defies WTO. There is a big question mark on this subsidy. Unless the nuisance of fixing irrational State Advisory Price (SAP) for sugarcane is resolved, momentum in sugar export cannot be built up. Sudan, Somalia. UAE, Bangladesh, Iran, Sri-Lanka, Yemen would remain targeted markets if parity with Brazil is attained.
In this vastly complex market of varied commodities, GOI cannot do much except that it should allow the application of newer technologies in the agriculture, take up with WTO for permissible export subsidies when world markets are distorted by deep depreciation in currencies due to power-politics  and offload FCI wheat stocks at market prices which are recovering. 

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