India Imposes Wheat Stock Limits for Traders
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India’s Ministry of Agriculture and Farmers Welfare (MOAFW) released its third advance estimate food Grains for Indian crop year (ICY) 2022/2023 (July-June) in late May 2023. The ministry is raising its Grain production estimate to a record-busting 330.5 million metric tons (MMT) that is, nearly 7 MMT higher than the earlier second advance estimate and about 15 MMT higher than last year’s previous record harvest, which is the highest year-on-year increase during the last decade.
Despite the relatively uneven 2022 southwest monsoon’s performance, the forecast record Grain production for the Indian crop year (ICY) 2022/2023 (July-June) is driven a new by record production of rice, Wheat, Corn, and pulses (i.e., mung beans and lentils). Most of FAS New Delhi’s (Post) trade sources comment that the Indian Government’s forecast is highly ‘optimistic’ and intended merely to portray comfortable domestic supplies on food inflation concerns in the lead-up to state-level elections this fall, 2023, followed by national elections next April 2024.
Based on the latest market reports reflecting tighter than expected domestic supplies, Post lowers its MY 2023/2024 Wheat production forecast to 108 MMT. Government Wheat procurement under the MSP program should end below the initial procurement target of 34.2 MMT. Domestic prices remain well above MSP prices and even last year’s prices despite the Government’s continued export ban on Wheat and Wheat products and the absence of purchases by major exporters during the peak marketing season (April-June).
MSP procurement has now been finalized in most Indian Wheat production states. Procurement in Uttar Pradesh, Madhya Pradesh, and Rajasthan are well below the average level. This is attributed to higher market prices compared to the government MSP of INR 21,250 ($255) per MT, driven by crop size speculation and farmers/traders holding onto higher-than-normal stocks.
Local Wheat prices softened in March-May 2023 due to the Government releasing additional Wheat in the last quarter of MY 2022/2023 on the expectation of a record harvest. Nevertheless, domestic Wheat prices have been on the rise since the second half of May, which is fueling food inflation concerns. Average spot prices during June 2023 in the principal Wheat production states ranged from INR 22,500 ($278) to 23,720 ($290) per metric ton, well above the Government MSP of INR 20,150 ($293) per metric ton. The country’s average Wheat prices in June 2023 are 13 percent higher than last year’s level, raising fears of food inflation and a lower-than-expected crop size.
Wheat Stock Limits in India
On June 12, 2023, the Government of India imposed stock limits on Wheat for retailers, traders, and processors effective through March 31, 2024, to discourage hoarding of Wheat and price speculation. Stock limits to the various entities range from 10 MT for retailers, 3,000 MT for traders, and 75 percent of the installed annual capacity for processors, wherein they must bring their stocks to the prescribed limits within 30 days or face criminal prosecution. In addition, the Government announced the release of 1.5 MMT of Wheat from the government stocks under the open market sale scheme to local processors.
Government imposed limits on Wheat, and its intervention in the market through releasing Government-held Wheat stocks for open market sales has had a limited impact on overall Wheat prices. Wheat prices remain firm, and no further Wheat supplies have been pushed out onto the market to bolster Government MSP procurement. Most trade sources attribute the price rise to tighter domestic supplies due to lower-than-anticipated MY 2023/2024 Wheat production. Given the upcoming elections in key states in the later part of CY 2023 and the parliamentary election in early 2024, the Government is likely to take additional policy measures to control rising domestic prices, which may include lowering the import duty to augment domestic supplies for millers located near the country’s ports.
Other sources: USDA
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