Less cash and low stocks make wheat prices climb

In wheat, the situation has been worsened by stocks with FCI — at 18.84 million tonnes (mt) as on November 1 — at a nine-year low.

Written by Harish Damodaran | New Delhi | Published:November 19, 2016 3:11 am
wheat, wheat trade, india wheat trade, wheat trade india, demonetisation, demonetisation effects, demonetisation news, india news While Krishi Bhawan has estimated the 2015-16 wheat crop’s size at 93.5 mt, private trade has pegged it as low as 80 mt.

Wheat prices have spiralled, reflecting the precarious domestic stocks position and concerns over production of new crop because farmers are unable to arrange sufficient cash for cultivation operations, following the demonetisation of Rs 500 and Rs 1,000 currency notes.

Wheat was sold at a range of Rs 2,338-Rs 2,379 per quintal at the Food Corporation of India’s (FCI) latest e-auction of stocks from its depots in Delhi on November 17. This was higher than the Rs 1,943-Rs 1,959 and Rs 2,124-Rs 2,129 rates at the preceding weekly e-auctions held on November 11 and November 3, respectively.

“Prices initially fell after the demonetisation decision on November 8 because the general feeling was that millers and traders would be cash-strapped, making it difficult to undertake purchases. But now, it seems that lack of cash with farmers, which could potentially impact sowing and cultivation operations of the new crop, is a real concern,” said trade sources.

Significantly, though, the Agriculture Ministry’s latest data released on Friday shows the total area sown under wheat in the current rabi season was 79.40 million hectares (mh), marginally higher than the 78.83 mh covered during the same period of last year.

“Sowing, as such, may not be affected because farmers normally use a portion of grain retained from the previous year’s crop as seed; not many buy fresh seeds every year for planting of wheat. The more serious issue is whether there will be enough cash with them to buy inputs and pay for labour as the season progresses,” said sources.

“The Centre should immediately allow farmers to purchase seeds, fertilisers, pesticides and other inputs in kind from primary agricultural credit societies or district cooperative banks using the demonetised notes. These outlets can accept the old Rs 500 and Rs 1,000 notes against their kisan credit cards or agricultural pattadar passbooks (land title deeds). This is the only way to help farmers make timely purchases today,” said G Ravi Prasad, president (corporate affairs), Coromandel International Ltd, India’s largest private phosphatic and complex fertiliser manufacturer.

In wheat, the situation has been worsened by stocks with FCI — at 18.84 million tonnes (mt) as on November 1 — at a nine-year low (see chart). This was largely a result of last year’s crop being affected by poor soil moisture levels, aggravated by high temperatures and absence of winter rains.

While Krishi Bhawan has estimated the 2015-16 wheat crop’s size at 93.5 mt, private trade has pegged it as low as 80 mt. It has led to millers contracting imports of 3.5 mt, of which roughly 1.4 mt has arrived, so far.

“There is scope to import another 0.3-0.4 mt at the most before March 31. By then, the crop, whose planting is now on, would be ready for harvest. The government cannot take any chances with its production because we don’t expect wheat stocks with FCI of April 1 to be more than 6 mt, which is below the minimum buffer norm of 7.46 mt for that date”, said sources.

Pritam Singh Hanjra, a farmer from Urlana Khurd village in Haryana’s Panipat district, said that most farmers in his area had procured their initial stock of di-ammonium phosphate and urea before demonetisation happened.

“This was used at the time of sowing, which is already 90 per cent complete in Punjab and Haryana. The second round of application will be 25-26 days after sowing, for which cash is required. In Uttar Pradesh and other states, wheat sowing is yet to begin and farmers there could have problems in procuring fertilisers without adequate cash,” he said.