India imports wheat amid falling domestic production

Bloomberg

Wheat production in India will probably fall short of a government forecast, spurring the world’s second-biggest grower to import a large quantity amid declining domestic inventory. Prices in Mumbai dropped for a third day.
Production is set to total 91 million tons in the 2016-17 crop year, according to the median estimate of eight traders and analysts surveyed by Bloomberg. That’s the lowest since 2014-15 and compares with the government’s estimate for record 96.6 million tons this season. Imports in 2017-18 may total 2 million tons, the second highest level in 11 years, the survey shows.
India scrapped its import duty in December and has been purchasing high-protein grain from Australia, Russia and Ukraine after El Nino-linked drought cut production. It’s been a bright spot for global prices in a world with record reserves as the country typically produces enough to match consumption. Stockpiles at state warehouses totaled 11.53 million tons in February, down 43 percent from a year earlier, according to state-run Food Corp.
“To refill and replenish stocks the government will procure as much as they can from the domestic market,” said Indrajit Paul, a grain analyst with Cofco Agri Ltd. Even if India were to raise its import duty to 25 percent from zero, private buyers may seek imports, he said. “Imports will happen mainly to fulfill needs of millers in South India. Most of the imports next season are expected to come from Australia.”
The government is seeking to buy 33 million tons of wheat from the crop that’s going to be harvested starting March, up 44 percent from a year earlier, the Food Ministry said on Feb. 15. Indian wheat futures fell 0.2 percent to 1,698 rupees/100 kilograms on Wednesday. Local prices are currently higher than the government’s minimum purchase price. Futures in Chicago have climbed 11 percent this year.

IMPORT DUTY
“South India will definitely need imports,” said Sudhakar Tomar, managing director of Dubai-based Hakan Agro DMCC, a trader and processor of commodities. “For continuous food security, it is imperative for the government to allow imports post its procurement. The government should also protect the farmer to encourage him to grow by imposing an import duty during harvest.”
The government may make a decision on reinstating the wheat import tax by the end of the month, with the uncertainty prompting traders to import as much as they can in January and February, according to Cofco Agri’s Paul. The arrival of so many vessels has led to congestion, mainly at ports in southern India including Tuticorin and Chennai, he said.
The recent increase in shipments may see imports reach 6 million tons in the season ending March 31, up from a previous forecast for 4.5 million tons, Paul said. That compares with 3.7 million tons estimated by US Department of Agriculture for 2016-17. The Food Ministry estimates 2016-17 wheat imports at more than 5.5 million tons.
“Fresh imports will start after June depending on the demand and price,” said P. Gunasekaran, president of Tamil Nadu Roller Flour Mills Association. “A lot of wheat has come into India and that has to be processed first. My gut feeling is the government may impose a duty of 10 percent to protect farmers during the harvest,” he said
Imports from Australia, where wheat production reached a record, will be viable even if the government imposes a duty of 10 percent, Gunasekaran said. About 300,000 tons of imported wheat is at various ports in southern India, with some traders making distressed sales of grain on expectations prices may drop during the harvest, he said.