Wheat prices likely to slump in coming days
Wheat prices in Delhi are trading higher by 32% from the same period the previous year at Rs 2,900 per quintal, it is trading 36% higher than the minimum support price (MSP) of Rs 2,125/quintal.
The retail prices of wheat as on 30th December 2022 was Rs 32.17 per kg and atta is Rs 37.06 per kg, which is higher by 1.1% and 0.2%, respectively from the last month.
The central pool wheat stocks as of 12th December was 18.2 million MT (MMT) which is 50% lower than the previous year while by 1st January 2023 stocks would be near 15.9 MMT as per data published by the Ministry of Consumer Affairs, Food and Public Distribution.
This means the wheat stock would remain just 2.1 MMT higher than the buffer norm requirement of 13.8 MMT. The government has also stopped the wheat distribution under Pradhan Mantri Garib Anna Kalyan Yojana (PMGKAY) post December 2022, while the government will provide free foodgrains under the National Food Security Act (NFSA) for another one year (i.e. January 2023 to December 2023).
Now, the question of the hour is “Will the government start releasing wheat under Open Market Sales Scheme (OMSS) in the first quarter of 2023”?
In order to cool off the wheat prices gradually, the government should start releasing wheat as prices are already trading near record highs.
As stated, wheat stocks with the central pool as of 1st January 2023 would remain 2.1 MMT above the buffer norm, also the wheat distribution under PMGKAY is stopped which means now the government could release around 1 to 2 MMT wheat under OMSS scheme.
Meanwhile, the current market prices are 36% higher than the MSP and if the wheat prices are not capped now, then it would be difficult for the central government to procure enough wheat in the upcoming season starting from April 2023.
The central pool stocks by the end of March 2023 are likely to remain in the range of 9 to11 MMT which is the second lowest after 2017. Hence, the government would aggressively procure wheat in the coming season to fill up their granaries.
Wheat sowing as of 30th December 2022 stood at 32.5 million hectares, 3.6% higher than the same period last year.
Wheat production is expected to increase in the range of 10-13% from the previous year, thanks to the higher sowing progress amid better subsoil moisture left by the late-season rains.
However, the only caveat which may impact the wheat crop yield is the above-normal temperatures till the first fortnight of December, but with the cold wave and dip in temperatures across the northern and north western part of India in the previous one week may boost the crop health, also the forecast for next 5 – 10 days shows dense fog and cold waves across the north India wheat belt.
The temperatures play a crucial role for the wheat crop which is at the Crown root initiation to tillering stage now.
Hence, any fluctuations in temperature would be detrimental to the crop and would impact the crop size, hence to be monitored closely.
On the prices front, we expect wheat prices would trade sideways in the Rs 2,800-2,900 per quintal price band in the short term and would gradually correct once the wheat sale under OMSS starts, thereafter, prices would start cooling off once there is clarity on the new crop size in the later months.
(The author is Senior Manager – Commodity Research, Origo Commodities India)
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