November 6th, 2013
Food Corporation of India, the government’s grain procurement and management agency, is set to float a revised tender on November 15 for its proposed two million-tonne wheat export, with a $40/tonne cut in floor prices.
The first tender, floated in August by three government agencies — MMTC, STC and PEC — for the FCI wheat had a floor price of $300 a tonne, almost equivalent to the average realisation in the 4.2 mt of export last year. It got no bids at that price, as the open market global price was much lower, around $235 a tonne at the benchmark Chicago Board of Trade (CBoT).
Global bidders did offer $240-260 a tonne. Conse-quently, the Empowered Group of Ministers (EGoM) which approved the earlier decision had, late last month, decided to cut the floor price for wheat export to $260 a tonne.
“Even this price level is not attractive. But, we have little choice. The price is decided by the EGoM, which thought to fix the floor price at the highest on the graph,” said a senior FCI official.
Wheat prices have been very volatile so far this financial year. After hitting $265.17 a tonne ($7.22 a bushel) on April 30 at the CBoT, wheat for near-month delivery fell to $230.82 a tonne ($6.28 a bushel) on August 13. After a resurgence to $259.29 a tonne ($7.06 a bushel) on October 18, it was trading on Wednesday at $242.1 a tonne ($6.59 a bushel).
The current price translates into Rs 15,085 a tonne or Rs 1,508.5 a quintal in rupee terms. For delivery late this month, it is quoting at Rs 1,626 a qtl on the National Commodities & Derivatives Exchange (NCDEX).
To make this attempt successful, FCI is focusing on special cleaning of wheat, to improve its quality. “We procure wheat at a machine-cleaned fair average quality. We are cleaning it again, for higher realisation,” said the official.
FCI exported 4.2 mt last year at a premium of $50 a tonne over the CBoT price, fetching an average of $311.69 a tonne. For the first lot of export, the reserve price was fixed at $228, enhanced to $300 a tonne for dispatching three mt in the second lot.
The scenario is different this year. According to the latest report by the Food and Agricultural Organisation (FAO) of the United Nations, global production is forecast to be seven per cent higher this year at 705 mt, to set a record. Also, global wheat inventories are forecast to reach 163.3 mt, about 5.2 per cent (eight mt) above their opening level.
By the time the new tender is put through, plantings of the 2014 winter crop will show a clear picture in America, Europe and India. FAO has forecast the sowing area to remain higher this year in the US and Europe; so, output is expected to remain proportionately higher.
Reuters says the price will remain subdued, at around $239 a tonne ($6.50 a bushel), with a downward bias.
“India enjoys a geographical advantage in supplying wheat to the East Asia, the Gulf and East African countries at a lower freight cost. There will be some movement in the revised tender,” said Pravin Dongre, Chairman, India Pulses and Grains Association.
South Korea, Ethiopia, Bangladesh, Thailand and Indonesia were large buyers of India’s wheat last year. Others which had bought were Sharjah, Dubai, Sudan, Oman, Qatar, Vietnam, Malaysia and Philippines. Courtesy Businessstandard