24-Sep-2013
India's latest program to export wheat from government stocks is likely to come a cropper, commodity traders said, because the grain's price in the international market has fallen way below the minimum price set for shipments from the country.
New Delhi is looking to export two million metric tons of wheat that would help it reduce the pressure on overflowing state granaries and raise about $600 million of revenue for the government, a target that now looks increasingly difficult to achieve.
The government's minimum target price for exports is $300 a ton, set a year and half ago. Wheat comparable to the Indian variety, from Eastern Europe countries such as Russia and Ukraine, is now available 20% cheaper, said a New Delhi-based trader at an international commodities trading firm.
"It is next to impossible to export at this [government-set] price level," said the trader.
Lowering the minimum price for exports could become politically risky—that would mean selling the grain at below the cost incurred on sourcing it, and could give another weapon for opposition parties to attack the government with elections just a few months away. Prime Minister Manmohan Singh's government is under pressure because of corruption allegations over the sale of state assets such as telecommunications bandwidth and coal blocks.
Some traders say India can afford to cut the price for exports because a fall in the value of the local currency will absorb part of the impact when the export earnings are converted into rupees. The Indian rupee has fallen about 12% against the dollar since Jan. 1.
Meanwhile, three state-run Indian trading agencies are looking to firm up deals by next week to ship out up to 160,000 tons of wheat out of the two million tons that the government recently cleared to export, according to governments officials.
India is likely to decide on future exports based on the response to this tender offer, an official at state-run grain-procurement agency Food Corporation of India said.
"If the price received is very good, then government may continue exports," he said. "If the response is below expectation, then they may review the policy."
India has emerged as one of the biggest wheat exporters over the past year and half following a global shortage because of a drought in Eastern Europe. During this period, it sold 4.2 million tons of the grain at an average price of $311 a ton, about $10 above the cost it incurred for procuring the grain from farmers.
The strong run that India has enjoyed is beginning to wear thin because of better climate conditions and output in major wheat-producing regions including Europe and Canada. World wheat production in 2013-14 is projected at a record 708.9 million tons, a report from the U.S. Department of Agriculture said.
India's state warehouses hold more than double of the grains required to supply through government-welfare programs. This stock position is expected to increase by a third with the harvest of the summer-sown rice crop in early October.
According to traders, most of the bids for the tenders to export 160,000 tons of wheat would likely be in the range of $260-$270 a ton. Buyers would also have to pay for freight.
"There is no demand for Indian wheat" at the government-set minimum price of $300, said a Mumbai-based trader at an international commodities trading company.
Source:- online.wsj.com
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