May 22 (Bloomberg) -- Wheat exports from India, the world’s second-biggest producer, are set to plunge as farmers hoard the crop and a rally in domestic prices turns buyers away to cheaper supplies from Russia and Ukraine. Futures climbed.
Shipments may fall to about 1.5 million metric tons in the year that began on April 1 unless local prices drop by 1,000 rupees ($18) a ton or the Indian currency declines against the U.S. dollar by 10 percent, said Rajnikant Rai, chief operating officer of agriculture business division at ITC Ltd. That compares with 8 million tons forecast by the U.S. Department of Agriculture. Exports were 5.3 million tons in 2012-2013, according to the Indian government.
Futures in Mumbai have rallied 15 percent since the start of April, even as prices in Chicago were little changed in the same period, as farmers hold back supplies betting prices may further surge. Falling Indian supplies may increase demand for the grain from the U.S, the biggest shipper, and the Black Sea region. The world will harvest a record 701.1 million tons next year, the USDA said in a report on May 10.
“I will hold the crop till I get a better price,” said Subhash Chand Sharma, a 45-year-old farmer from Papri village in the northern Indian state of Uttar Pradesh, who harvested 18 tons of wheat from the 10 acres he owns. “I can hold on to the crops for next two months. I am hopeful of an increase in prices later as happened last year.”
Cash prices may rally to 1,500 rupees per 100 kilograms in the next two months compared with 1,350 rupees paid by the government agencies now, he said. Open market prices jumped 30 percent in two months after the harvest last year as exports picked up and private traders stepped up buying, he said.
Government purchases from farmers have fallen 21 percent to 24.56 million tons as of May 20 and total purchases may be about 33 million tons, 25 percent less than the target of 44 million tons, according to the food ministry. The government sets crop prices to assure farmers’ incomes, while selling subsidized grains and cooking oils to the poor. It buys about 30 percent of rice and wheat output from farmers at the set prices.
Wheat has climbed on the National Commodity & Derivatives Exchange Ltd. in Mumbai since the start of April, making supplies from India about $50 a ton more expensive than grains from the Black Sea region. The contract for June delivery advanced 1.2 percent to 1,583 rupees per 100 kilograms today, poised for the highest close this year. Wheat for July delivery climbed 0.7 percent to $6.8525 a bushel in Chicago at 1:51 p.m. Mumbai time.
“India may not be able to export wheat at current prices,” said Abdolreza Abbassian, an economist at the United Nations’ Food & Agriculture Organization. “It will be difficult for them to dispose this extra wheat into the market. This could eventually create a hangover in the domestic market and it’s a problem for them.”
Milling wheat from Black Sea region is available at $260 a ton free-on-board, while feed variety is quoted at $250 after July, while Indian supplies were about $310 a ton on a free-on-board basis, Tejinder Narang, an adviser with Emmsons International Ltd., a New Delhi-based trader.
“Exports may be 2 million tons this fiscal year unless we cut our prices by $50 a ton after July to compete with wheat from Black Sea region,” Narang said. “Carrying cost of wheat will increase while quality will deteriorate.”
India’s plan to export 5 million tons from state stockpiles through private traders have failed to attract buyers because of the minimum price of 14,840 rupees a ton, according to the Food Ministry. The government is not in a hurry to cut the export price, Food Minister K.V. Thomas said May 17.
State stockpiles expanded 12 percent to 42.7 million tons at the start of this month from a year earlier, according to the Food Corp. of India. Production may drop to 92.3 million tons in the year ending June 30 from 94.9 million tons a year earlier, according to the Agriculture Ministry.
To contact the editor responsible for this story: James Poole at firstname.lastname@example.org