Indian Wheat Prices Soar to 8-Month High Amid Festival Frenzy and Supply Squeeze

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  • Commodities News
Indian Wheat Prices Soar to 8-Month High Amid Festival Frenzy and Supply Squeeze
Credit: © Reuters.

In a whirlwind of demand driven by festive fervor and constrained supplies, Indian wheat prices have soared to an eight-month peak, raising concerns of food inflation. With import duties hindering foreign purchases, there's growing pressure on the government to release reserves and possibly ease import restrictions, as elections loom and supply shortages intensify, putting the cost of wheat beyond 30,000 rupees. Domestic procurement has fallen short of targets, while weather anomalies threaten the upcoming wheat crop. Amid this price surge, a significant disparity exists between government estimates and those of a leading trade body regarding the wheat harvest's size, underscoring the market's uncertainty.

Wheat Prices Surge: Indian wheat prices reached an eight-month high due to a combination of factors, including strong demand for festivals, limited supplies, and import duties that discourage overseas purchases for domestic flour mills.

Potential Government Action: The increasing prices might compel the government to release more wheat stocks from inventories and reduce import duties on wheat to ensure a steady supply and control prices. This could be especially crucial in the lead-up to important state assembly elections and a general election in the following year.

Food Inflation Concerns: Rising wheat prices have the potential to contribute to overall food inflation in India.

Price Increase: Wheat prices in New Delhi rose by 1.6% on Tuesday, reaching 27,390 rupees per metric ton, the highest level since February 10. Over the past six months, prices have surged by nearly 22%.

Call for Duty-Free Imports: Industry experts, like Pramod Kumar S, president of the Roller Flour Millers' Federation, are calling for duty-free imports to help reduce wheat prices.

Import Tax on Wheat: India has not shown immediate plans to remove the 40% import tax on wheat.

Decreased Government Wheat Stocks: As of October 1, government wheat stocks were substantially lower than the five-year average, standing at 24 million metric tons compared to an average of 37.6 million tons.

Procurement Shortfall: India managed to procure 26.2 million tons of wheat from farmers in 2023, falling short of the targeted 34.15 million tons.

Weather Concerns: There are concerns about the El Nino weather pattern potentially leading to warmer than normal temperatures during the winter, which could negatively affect the upcoming wheat crop.

Discrepancy in Wheat Output Estimates: While the government estimates record wheat output at 112.74 million metric tons in 2023, a leading trade body suggests the harvest is at least 10% lower than the farm ministry's estimate.

Supply Tightening: The market anticipates a further tightening of the supply situation in the coming months, with the risk of prices exceeding 30,000 rupees unless the government eases import restrictions.

The surge in Indian wheat prices, driven by festival demand and constrained supplies, has immediate implications for consumers and inflation. Rising wheat costs underscore the need for the government to ensure a steady supply through strategic releases and import policy adjustments. The discrepancy in production estimates and weather-related uncertainties add complexity to the market's outlook. Ultimately, the future of wheat in India hinges on effective policy decisions to balance affordability, availability, and food security.

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