Yields on target, prices expected to stay steady

Yields on target, prices expected to stay steady
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First Published: Mon, Feb 18 2008. 12 03 AM IST
Updated: Mon, Feb 18 2008. 12 03 AM IST
Ahmedabad: India is expected to meet its estimated foodgrain production targets of 221.50 million tonnes (mt) for fiscal year 2007-08.
As per the second advance estimates of production of major crops grown in the country, the Union government is predicting production of 219.32mt for 2007-08. Last year, the final estimate was 217.28mt, agriculture secretary P.K. Mishra told reporters on 7 February.
With prices in global markets ruling high, a comfortable situation at home means foodgrain prices will remain range bound and help the government keep inflation under check.
While production of rice, maize, soyabean and cotton is estimated at an all-time record, the government is also hoping to achieve a record foodgrain production this year.
“The government appears to have managed the supply side of the foodgrains quite well and this is good for the country, especially at a time when globally prices of foodgrains are witnessing a boom,” said Atul Chaturvedi, president, agro, Adani Enterprises Ltd, one of the big commodity trading companies in the country.
Chaturvedi said that while wheat was quoting in international markets at around $430-450 (Rs17,071-17,865) per tonne, the domestic price of wheat is in the range of $275-280 per tonne.
“We speak to a lot of international players and they would love to import wheat from India which, at present, is one of the cheapest sources and I believe would continue to remain so,” he added.
Wheat traded at Rs14,500 per tonne last season and is currently trading at Rs11,000, while maize traded at Rs10,500 per tonne last year, and is trading at around Rs8,500 per tonne currently.
“Looking at the foodgrain situation, India is not likely to see prices much higher than last year,” said Biren Vakil of Paradigm Commodity Advisors Pvt. Ltd, the commodity advisory services company based in Ahmedabad.
“This is good news if you look at global prices.” He said India, in fact, is all set to touch all-time high production levels in foodgrain crops of rice and maize.
Rice production is expected to touch an all-time high of 94.08mt compared with 93.35mt last year.
The kharif crop (monsoon season planting with sowing in April and reaping by October) of rice had seen production at 81.52mt—higher than earlier estimates of 80mt and last year’s 80.17mt.
Rice is primarily a kharif crop and is sown in lesser quantities in the rabi season (sowing beginning around September-October and reaping in March-end or April).
The situation is similar for maize, which is likely to see production at an all-time high of 16.78mt, compared with 15.10mt last year.
The production of third important foodgrain crop, wheat, on the other hand, is likely to remain stagnant or drop slightly. Wheat production during last year was at 75.81mt. This is expected to go down to 74.81mt as per advance estimates. The demand, on the other hand is estimated at around 75.85mt.
This, Chaturvedi said is not much cause of worry. “The government of India had announced an inventory of 7.1mt as on 1 February,” he said. “So, if one considers consumption for the month of February and March before the new crop comes, we would start the new year with an inventory of anywhere between 4-5mt.”
Vakil said given the adequate inventory and recent cold wave and rains in the northern plains, this would boost yields for foodgrains in rabi season too.
“The government had taken steps to attain food security and as part of this exercise, the government has used options at the Chicago Board of Trade to hedge price shocks arising out of the hyper bull run on global markets,” he said, adding that this would also help keep prices of foodgrains in India under check.
Talking about impact of a good foodgrain crop in India, Ravindra Dholakia, professor at the Indian Institute of Management, Ahmedabad, said that better management and a good yield of foodgrains mean that inflation would reasonably be under the target of 4.5%-5% estimated in the 11th Plan.
“I believe that inflation below 5% is good for the Indian economy because it would help the industrial sector to get better credit,” he said.
Dholakia said India is likely to be comfortable in food-grains compared with the global situation, and that puts the nation at an advantage with better bargaining power. “The government should think of relaxing futures norms for foodgrains and this would allow farmers get better prices,” he said.
However, there are some who advise caution. “As India urbanizes, per capita incomes are on the rise,” said V. Shanmugam, an economist with Multi Commodity Exchange of India Ltd (MCX). “This urbanization is fuelling foodgrain consumption as urbanites move from coarse cereals to better foodgrains, such as wheat. So, if demand grows higher than production, then it could affect the sentiment.”
Shanmugam added that it is unlikely that the price of wheat is going anywhere near global prices.
“The cues, globally, are very different, as China has announced a crop loss in an area of over 2.6 million ha due to unseasonal winter post mid-January,” he said. “The Indian situation, on the other hand, would remain relatively comfortable this year. We, however, cannot say so for coming years.”
PTI contributed to this story.
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First Published: Mon, Feb 18 2008. 12 03 AM IST