Another example of food prices starting to affect the stability of the world's most populous and certainly refocus on the importance of food security.
--------------------------------------------------- India to pay heavily for scrapping wheat tender Tuesday, June 19, 2007
NEW DELHI: India’s decision to scrap an import tender for one million tonnes of wheat will prove costly, given clear signs the country will be forced to buy large volumes from overseas markets just as prices have surged to an 11-year high.
India cancelled a tender to import 1 million tonnes of wheat in May, saying that prices of around $263 a tonne were high. But policy makers might in hindsight be thinking this was a mistake as purchases now would cost around 15 percent more.
With world wheat stocks seen falling to their lowest level in 30 years, erratic weather disrupting the US winter wheat harvest, and drought in Ukraine and Russia, analysts expect little respite for prices in the near term.
“India will now have to pay anywhere close to $300 a tonne to buy wheat as prices have been soaring at the Chicago Board of Trade,” said Atul Chaturvedi, president of Adani Exports Ltd, a commodities trading firm which was among the bidders for the tender New Delhi cancelled. “In retrospect, it seems the government should not have scrapped the tender.”
Wheat on the Chicago Board of Trade rose to 11-year highs of above $6 a bushel last week. But the market ended mixed on Friday. The July contract settled unchanged at $6.06-½ a bushel, below Thursday’s contract high of $6.19-1/4.
Earlier this month, Farm Minister Sharad Pawar said the country would need to import 5 million tonnes between August and December to ensure that there was enough wheat in the next crop year beginning April 2008.
Government officials have said New Delhi would hold a tender to import 2 million tonnes of the grain by the end of June.
“The market is looking extremely tight,” said Rajini Panicker, head of commodity research at Man Financial India. “The fact that India is looking to buy has added support to the international scenario.” Analysts said it would be tough for India not to buy, as global supplies could fall further in coming months. And the new Australia crop was not expected until October.
“The government is indeed interested in importing wheat. The idea is to build large buffer stocks,” said a senior government official.
Food security: Though India will need to import wheat, New Delhi isn’t desperate to do so — officials maintain there is enough grain to meet domestic demand until next April. In April 2007, when the current marketing year began, the government had around 5 million tonnes of wheat in its bins against 4 million tonnes normally. It has since procured about 11 million tonnes from farmers, against 9.2 million a year ago.
Moreover, if the country harvests a crop of 73 million tonnes as forecast, against 69.3 million tonnes last year, the grain situation would be comfortable, given an annual domestic consumption of about 70 million tonnes.
Analysts said the government is aiming for a relatively larger buffer stock to keep a lid on prices throughout 2008, and to avoid a similar situation it faced in 2006, when domestic prices failed to come down despite large imports of 5.5 million tonnes.
“It is a question of food security and we don’t have the luxury to play around with prices,” saidAvinash Raheja, senior vice-president of Commtrendz Risk management. “There could be problems in wheat supply with the Ukraine situation.”
About 60 percent of Ukraine’s grain fields, or about 10 million hectares, are suffering from drought and at least 800,000 hectares of grain crops have already died, according to weather forecasters. And a senior agriculture official said the ministry had slash the 2007 wheat crop forecast by a third to about 12 million tonnes from the previous outlook of 18 million.
Analysts said the government should plan its long-term purchases better.
“Everybody knows that India is getting into a desperate situation for wheat. For all these risks, there will be a premium,” Raheja said.
Domestic wheat prices at local wheat markets have risen 7.6 percent to about 915 rupees ($22.35) per 100 kg, from 850 rupees in May.
