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Indian wheat to swell global grain glut

New Delhi, May 20, 2010

Tarpaulin-covered mounds of wheat facing damage from fast-approaching monsoon rains are putting pressure on India to step up grain exports, strengthening prospects of a bigger global wheat glut this year.

India will probably ship additional cargoes of wheat to its neighbours and try to blaze inroads into Southeast Asia and the Middle East, giving competition to Black Sea-origin grain and squeezing global benchmark prices.

India's fourth good harvest in a row has swelled wheat stocks to 31 million tonnes, almost eight times its target of 4 million, forcing authorities to pile up nearly 7 million tonnes of grain under tarpaulin in the grainbowl states of Punjab and Haryana.

Stocks of rice, too, at 26 million tonnes, are more than double the target of 12.2 million and set to soar as forecasts of normal monsoon rainfall from June will help the crop bounce back from a 14 per cent fall after last year's drought.

"There is so much wheat lying around that storage is a big problem, they have to export wheat," said Veeresh Hiremath, a senior analyst with brokerage Comtrade in southern Hyderabad.

"I believe there will be more government-to-government deals."

To prune its unmanageable stocks, the government on Tuesday waved through exports of 100,000 tonnes of non-basmati rice to Bangladesh, a week after permitting shipment of 400,000 tonnes of wheat to the country.

Still, India is reluctant to completely scrap its ban on export of wheat and non-basmati rice for fear that could stir up further criticism and public protest against rising food prices, which have surged more than 16 percent in the year to May.

Exports to continue

As an immediate measure to tide over the problem of plenty, India will keep selling grain, particularly wheat, to its South Asian neighbours so as to fill its limited storage space with newly harvested grain and cut the risk of damage to staples in makeshift facilities, analysts and trade officials said.

"Wheat stored under tarpaulin is 100 per cent prone to damage due to monsoon rains. It is quite vulnerable," said Adi Narayan Gupta, chairman of the Wheat Products Promotion Society.

"It is prone to rot and decay. Even in good weather, it is not safe to stock wheat in the open beyond six months."

Traders said Indian wheat prices, propped up by generous rates paid to farmers by official agencies, are too high to be competitive in distant markets but in neighbouring countries can challenge Black Sea wheat, which has many users in South Asia.

"The implication of such a deal (sale to Bangladesh) is that it is adding to the competition in the world wheat export market," said Toby Hassall, an analyst with CWA Global Markets in Sydney.

Indian wheat is quoted around $230 to $240 a tonne, including cost and freight, to Bangladesh, against $230 a tonne for Ukrainian wheat and $280 a tonne for Australian prime wheat.

Traders say Indian supplies would put more pressure on benchmark Chicago wheat prices, which have lost around 14 percent this year on prospects of growing global supplies of the grain for a third straight year.

"What the market has to do now is to generate that additional demand and the way it does that is by weak prices," said Hassall.

"The price of wheat will have to fall enough so that it stimulates additional demand to draw down the swelling global stockpiles."

In a forecast this month, the US Department of Agriculture put 2010/11 world wheat closing stocks at about 198 million tonnes, up from around 193 million this year and 165 million in 2008/09.

Officials in the northern Indian state of Punjab said that by April 1, more than 5 million tonnes of wheat had been stocked up since last year, forcing authorities to turn to even more make-shift storage facilities and export more grain.

And the situation can only become more dire as India is likely to produce 80.98 million tonnes of wheat in the harvest of April and May, beating last year's record of 80.68 million.

Government agencies, the dominant wheat buyers, have slowed purchases as they already hold much more than they can handle, with wheat purchases having fallen nearly 24 percent so far this year, to 21.1 million tonnes.

"Despite the fact that the government has slowed its procurement as it struggles to store wheat, it will end up buying 22-23 million tonnes. But even 22-23 million tonnes of procurement is simply huge," Gupta said. – Reuters




Tags: India | Exports | monsoon | wheat | New Delhi | Glut |

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