India Might Be In The Wheat Import Market Soon

Canny, cagey, cunning, unscrupulous or just plain bent? Trying to guess what the Indian government are up to is like attempting to figure out the plot of the Da Vinci Code.

Unless you have been living in a cave and not reading this blog, you will probably know by now that up until now they have been keeping the doors to their state-owned wheat granaries firmly shut.

That is despite reputedly owning anywhere from 28-32 MMT of wheat depending on who's figures you believe (I believe neither, but that is a seperate issue), and appeals from the local milling industry that there is virtually no more wheat left in the country in private hands.

The worst monsoon rains since 1972 have slashed summer rice production, and demand for wheat this year is consequently expected to be higher than ever in the world's second largest consuming nation. The USDA currently have India down to consume almost 77 million tonnes of wheat in 2009/10.

News this morning then, that the government have finally set the minimum price for wheat tenders should come as good news, right?

Not so, when you consider that domestic Indian wheat prices have been running at around Rs 1,200-1,300/100kg and that the government have now fixed the minimum tender price at Rs 1,379.70 - Rs 1,728.23/100kg, according to the Hindu Business Line.

Indian wheat futures prices have jumped the exchange imposed daily limit up this morning, as the tender prices are hugely above what the market had been expecting.

With international wheat prices currently substantially lower than the levels now being asked for the the government, this could spark a wave of import interest from Indian millers.

It seems like another bit of neat buck-passing by the government to me, very similar to their manoeuvres a few months ago on sugar. Then, by introducing a strict limit on the quantity of domestic sugar stocks that large users could hold (but crucially not on imported stocks), they effectively forced the likes of Nestlé and Pepsi to switch to using mostly imported sugar.

With a domestic usage rate of almost 6.5 million tonnes/month, and the winter wheat harvest still six months away Indian millers need a hell of a lot of raw material between now and then.

Required further reading: "...this cushy situation can change rapidly if India’s plight is officially accepted and becomes more widely known"