Wheat prices heat up, fuelling inflation fears

This comes as retail inflation continues to hover above the Reserve Bank of India’s upper tolerance level, driven by fuel and food prices. Even as retail food inflation marginally eased to 5.95% in February versus 6% in the previous month, cereal prices rose to 16.7% over concerns of a possible heat wave.

However, officials said the international supply of wheat has eased, and India is receiving fewer requests for wheat under the government-to-government route (G2G) following the export ban last year. Besides, India has also not received any request for wheat by the UN for the world food programme in this financial year.

Uttar Pradesh, a key wheat-producing state, received 44 fold increase in rainfall at 20.2 mm between 16 and 22 March, while Madhya Pradesh, the second-largest grower, got 17.2 mm precipitation, over 20 times higher than normal. Similarly, other key producing states like Punjab and Haryana witnessed over two times and 20 times more rainfall at 18.9 mm and 23.7 mm, respectively, data by the India Meteorological Department (IMD) showed.

“Rainfall and hailstorm in the past few days damaged standing crops across Madhya Pradesh, Maharashtra and Rajasthan. The crop quality has also deteriorated, which has pushed up demand for premium-quality wheat," Aniket Mehta, a Kota-based trader, said. “If the downpour continues for the next one week, harvesting operations could be disrupted in Punjab, Haryana and Uttar Pradesh, which typically starts from 1 April and may result in a delay in the arrival of new wheat by 10-15 days. However, this will largely depend on the weather conditions," he added.

The opening balance of wheat at the central pool is 5-year low at 11.67 MT in March 2023 against the buffer norm requirement of 13.8 MT, data by the Food Corp. of India showed.  The opening balance is the balance that is brought forward at the beginning of an accounting period from the end of a previous accounting period or when starting out. IMD expects rainfall accompanied by thunderstorms and hailstorms over Punjab, Haryana, Uttar Pradesh and west Rajasthan in the next two days as a cyclonic circulation over Iran and nearby areas is likely to move towards north India.“The delay in the arrival of new wheat due to the forecast of rainfall in coming days may push up prices by ₹50 per quintal in Delhi," said Indrajit Paul, assistant general manager, Agrevolution.

To be sure, wheat prices in Delhi fell to ₹2,400 per quintal from ₹3,200 after the government announced plans to offload 4.5 million tonnes in the open market to arrest the price rise.

A section of experts said prices might ease once wheat reaches the markets in full-swing from April-end. “However, prices are seen hovering over the minimum support price at ₹2,700 per quintal in the long term," Rahul Chauhan, a commodity analyst, said. The Centre has set wheat MSP for 2023-24 rabi season at ₹2,125 per quintal.

Mill-quality wheat price has shot up by 1-4% in the key markets like Bareilly, Indore, Kota and Delhi. On Thursday, mill-quality wheat was traded for ₹2,211 -2,500 per 100 kg in the benchmark markets, according to spot market sources.

Prices started rising since the government wrapped up the open market sale of wheat on Mar 16. Wheat prices were at ₹2,250-2,450 in Madhya Pradesh, Uttar Pradesh, Delhi and Rajasthan.

The government in its second advance estimate pegged wheat production in the 2022-23 (July-June) at 112.2 million tonne against 107.7 million tonne predicted last season.

“It is early to predict whether there will be a fall in production as it depends on how weather behaves in the coming days, but quality deterioration is expected as it will depend on weather conditions," Chauhan said.

Even as wheat prices continued to be under pressure, officials said that international availability of wheat has improved after the UN brokered Black Sea Grain Initiative which enabled Ukraine --one of the last grain producers -- to supply grains despite the ongoing conflict.

“Government to government (G2G) requests from India for wheat have come down. In Fact there have not been such requests in the last few months especially after international availability of wheat improved following the Black Sea Grain Initiative," first official said.

Russia and Ukraine had signed the Black Sea Grain initiative in July last year which was brokered with the help of the United Nations (UN) and Turkey. As per the deal, grain cargo ships were allowed safe passage from three black sea ports. Following the deal over 11 million tonnes of agricultural products were shipped from the black sea ports, as per UN.

Another official added that India has also not received requests for wheat under the world food programme.

“We have never said no to wheat asked under the World Food Programme (WFP) but they have not sought wheat from India during the current financial year. Most of the wheat under the government to government (G2G) route has gone to Bangladesh. Part of it has also gone to Afghanistan," the second official said.

Meanwhile brokerages also indicated that uncertainty around the recent weather condition could impact wheat prices.

“Wheat prices may also have peaked although some uncertainty prevails due to recent weather conditions; milk & its derivatives witness upward pricing pressure. On demand, uncertainty prevails, due to forecasts of El Niño, also weighing on consumer stocks," Jefferies said in a report on March 21.

Mint had earlier reported that India may extend its ban on wheat beyond March to arrest prices.

The government banned wheat export in May 2022 as shipments quickened due to the Ukraine war at a time when total production fell 2.5% due to a heatwave, straining domestic availability.

Wheat, a crucial rabi crop, has a share of 35.5% to India’s total foodgrain basket. India is the second-largest producer globally after China.