Wheat prices have recently surged to an eight-month peak, primarily due to robust demand during the festive season, coupled with constrained supplies. This trend emerges as import duties have created obstacles for domestic flour mills in procuring wheat from overseas, as reported by Reuters.
The prevailing situation may necessitate the government to release additional stocks from its inventories and reduce import tariffs to ensure an adequate supply of wheat and exercise control over prices. This becomes particularly significant in light of the forthcoming state assembly elections and the general election next year, with soaring wheat prices potentially contributing to food inflation, according to the agency's report.
In the capital city of Delhi, wheat prices recorded a 1.6% increase on Tuesday, reaching Rs 27,390 per metric ton, marking the highest level since February 10. Over the past half-year, prices have surged by nearly 22%.
Pramod Kumar S, President of the Roller Flour Millers' Federation, emphasized that the surge in wheat prices is being driven by the demand during the festival season and urged the government to permit duty-free imports to mitigate the mounting costs.
"The demand during the festival season is propelling the increase in wheat prices. The government needs to permit duty-free imports to reduce prices," he remarked.
While India currently has no immediate plans to abolish the 40% import tax on wheat, there is a growing concern regarding the depleting wheat stocks in government warehouses, which amounted to 24 million metric tons as of October 1. This figure is significantly below the five-year average of 37.6 million tons.
Ashwini Bansod, Head of Commodities Research at Phillip Capital India Pvt Ltd, noted that domestic wheat prices are on the rise due to the absence of imports and the government's inability to meet its procurement targets. In 2023, India acquired 26.2 million tons of wheat from farmers, falling short of the 34.15 million-ton target.
Furthermore, market participants are keeping an eye on the El Nino weather pattern, which could lead to warmer-than-normal winter temperatures and potentially adversely affect the upcoming wheat crop. Despite the government's estimation of a record-high wheat output of 112.74 million metric tons in 2023, a leading trade body suggests that the harvest is at least 10% lower than the farm ministry's projection.
A dealer based in Mumbai, associated with a global trade house, cautioned that unless the government initiates imports, the supply situation may further constrict in the upcoming months, raising the real prospect of prices surpassing Rs 30,000.
"The supply situation is poised to tighten further in the coming months, and there's a real risk of prices surging beyond 30,000 rupees unless the government opens the door to imports," the dealer asserted.
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