Wheat prices in the benchmark market of New Delhi rallied by 11.5 per cent in the last 50 days from the lows of Rs.2,260 per quintal made on the mid of April 2023. Wheat prices in New Delhi are trading at Rs.2,500 per quintal, it touched a high of Rs.2,520 on the last day of May 2023. Despite a larger wheat crop as compared to the previous year; the wheat arrivals were low during the peak harvest season which fueled the prices.
According to the Ministry of Agriculture’s 3rd Advance estimate, wheat production is estimated at a record high of 112.7 million tonnes, 4.6 per cent higher than the previous year. However, wheat procurement by the Food Corporation of India (FCI) till the end of May 2023 stood at 26.2 million tonnes, which fell short by 7.95 million tonnes against the target of 34.15 million tonnes. FCI purchased wheat at a minimum support price (MSP) of Rs.2,125 per quintal, which is increased by 5.5 per cents than the last year.
Punjab, Madhya Pradesh, and Haryana have together contributed 25.54 million tonnes of wheat to the central pool, which comprised of 97.5 per cent share of the total wheat procurement. Meanwhile, procurement fell precariously in the state of Uttar Pradesh where only 0.22 million tonnes is procured against a target of 3.5 million tonnes. Farmers preferred to sell wheat to private traders in Uttar Pradesh as the market prices were also around MSP and on top of that they received instant payment and on-farm procurement facilities.
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The unseasonal rains in March and April 2023 remain a boon for the wheat crop as it relieved the crop from heat stress, however, the crop quality is affected across the major wheat-producing states. Due to these, the Central government has announced quality relaxations on the wheat specifications for procurement, of which the farmers have taken the opportunity and sold their inferior quality wheat to FCI.
Meanwhile, some farmers hold back their good quality wheat stocks expecting better price realisation like the previous year while some farmers have sold their wheat to village-level aggregators or arthiyas. The mandi arrivals of wheat during April 2023 were about 9 per cent higher than the last year while in May it was 1 per cent higher than last year, but the total arrivals during April and May remain 2.3 per cent lower than the 5-year average.
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To control food inflation, the Central government intervenes in the market from time to time by releasing open market sales (OMSS) tender of wheat through FCI. In the last season, FCI sold around 3.57 million tonnes of wheat under OMSS. In the current year, FCI may not release OMSS wheat tenders before November or December.
In the absence of any policy intervention, wheat prices in Delhi would rally further towards Rs.2,700 to Rs.2,800 per quintal by the next quarter, prices may rally above Rs.3,000 per quintal if the El Niño condition worsens by the next rabi sowing season. Meanwhile, the dispersal of monsoon rainfall and the Kharif season paddy sowing is worth watching in the near term as it would play a significant role in driving wheat prices.
(Indrajit Paul is a seasoned commodity research professional and a commodity columnist in leading newspapers and digital news media. Views expressed in the article are author’s own.)
