PRE BID ANALYSIS OF INDIAN WHEAT TENDERS –23.12.2013

Tejinder Narang

BIDDING AT

MUNDRA PORT AROUND $290/MT FOB FOR AFRICA/ WEST ASIA

KAKINADA /CHENNAI AROUND $285-287/MT FOB FOR BANGLADESH

Indian wheat, which has been so far sold at an average value of $282-285/mt fob, can expect some upward movement by $7-$10/mt from Mundra ports WITH QUOTES AT $290-292 FOB; while east coast (Chennai-Kakinada) maybe range bound at $285-$287/mt fob.

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In Indian wheat tenders of about 0.6 million tons opened on 18th November, 12^th and 16^th December2013 about 52 bids were received. Call it a significant open interest or whatever. About 0.5 million tons stands contracted. Now there is additional bidding of about 0.3 million tons on 23.12.2013

A view amongst international traders, that, there is poor demand for Indian wheat is thus belied. Underneath this denial is the urge to buy wheat “below” the current market price to cover their short positions speculated due to lower Black sea prices prior to mid- October 2013. That is being presumptuous and not realistic. In the meantime “low priced wheat” is showing signs of getting firmer. Shorts have to be filled by physical delivery any way at the market price.

        Perhaps  MNCs traders are closing their books for "bonus" by year end. That is why they have not quoted aggressively in the last two Indian tenders to cover their shorts.  Aggression  may be seen from January 2014 onwards.

Will the prices in coming months descend or ascend? None can predict. Will Indian wheat around March/April2013—new crop-- will be lower from open market than through Government channels?Here is a caveat-- possibility of some state Governments giving a dose of bonus cannot be ruled out around 2014 General Elections, making FCI (Food Corporation of India) sucking more, hoarding over-extra wheat and creating tightness in the market. More the grain the more is the food inflation—an effect of administered economics !!! Upward revision of buffer norms also implies market tightness, higher grain prices in open market and therefore  probably additional exports by FCI through PSUs

 Effect of any rupee depreciation by USA Fed’s tapering move will be contained or not is any body’s guess. But Modi-factor sentiment supports appreciation of rupee.

UKRAINE/BLACK SEA PRICE ACTION

PRE BID ANALYSIS

THE following tenders for 300,000mt (0.3 million tons) wheat export are due on 23.12.2013.

·         STC-MUNDRA PORT—200,000MT (WEST COAST)

·         STC-CHENNAI PORT-70,000MT (EAST COAST)--- (talk of deferment of this tender heard.)

·         MMTC-KAKINADA PORT-30,000MT (EAST COAST).

1. A simple assumptive analysis is made on the basis of current market dynamics and the conventional pattern of bidding in Indian Public Sector Undertakings (PSUs)
2. Prices of black sea origin have spiked by about $10/mt since 10th-12th December 2013 as revealed in the Egypt GASC tender of 17^th December 2013 ( See Ukraine price chart above as well). EU, Black Sea wheat was offered around $302-305-308 fob in Egypt. This increase may be attributed to domestic demand pull and/or political and economic unrest in Ukraine. Prices continue surge though slowly. MNCs cannot cover their shorts without losing money in Black sea.    
3. Indian wheat has been so far sold at an average value of $282- $285-$287-$289/mt fob. (Very small tonnage is contracted at $287-$289). It can expect some upward movement by $7-$10/mt from Mundra ports WITH QUOTES AT $290-292 FOB (see table below); while east coast (Chennai-Kakinada) maybe range bound at $285-$287/mt fob. There could be more demand from Africa than West Asia and therefore bidding may be done at $290-$292 /mt fob for west coast. The freight advantage that India enjoys by its geographical locations will make up for trader’s margin.
4. This “extra” fob value of $7-$10/mt will come from mid-sized trading houses who undertake business in “difficult countries” of West Asia/Africa on delivered at destination basis. South East Asian demand may be subdued due to Australian pricing. However Bangladesh requirements will support east coast at Kakinada and Chennai.
5. Indian bargains do have some pluses --

·         Actual moisture is about 10-10.5% instead of 12%max. as offered in tenders. Thus higher net wheat content in each cargo.

·     PSUs performance is guarnteed after contracting, even if Black sea /global prices ascend abnormally. There has not been a single case of default for the last years’ shipment of 4.5 million tons.

·         All wheat vessels are granted preferential berthing at Indian ports with better load rate

RATIONALE-- TABLED BELOW

BASIS EGYPT TENDER 17.12.2013--- FEED WHEAT PRICES (WORST CASE)  CAN BE DEDUCED TO $280 FOB/MT

BASIS EGYPT TENDER OF 18.12.2013-$302/305/308
BLACK sea wheat	FOB	FRT-west asia/africa	TOTAL -C&FFO
12.50%	*300	40	340
11.50%	290	40	330
Feed wheat	280	40	320
	* EXCLUDING  trader margin

FROM MUNDRA FOB TO WEST ASIA IS $300; AFRICA $290

INDIAN WHEAT WEST ASIA/AFRICA				320
	FRT FROM WC TO W.ASIA			20
	FRT FROM WC TO AFRICA			30
	FOB PRICE FOR WEST ASIA			320-20=300
	FOB PRICE FOR AFRICA			320-30=290

 KAKINADA/CHENNAI- TO BANGLADESH $285-$287

INDIAN WHEAT TO GOVT OF BD	320
FRT FROM EAST COAST LINER-OUT	20
OTHER EXPENSES-Mongla/deductions etc.	15
NET FOB TO BANGLADESH	320-20-15=285