Wheat production: A back-to-back lower crop year

Wheat production: A back-to-back lower crop year
The downward correction in wheat prices would be limited even during the peak arrival season as lower crop size and tighter central pool stocks would keep the prices on a bullish tone, Indrajit Paul writes…

It was early November when we were mesmerised by the excellent start of wheat sowing across India. The wheat sowing commenced earlier than last year and fared very well in the initial days. However, by the time of completion of sowing, it remained marginally higher by 0.41 per cent from the previous year. Wheat sowing was done on 34.32 million hectares as compared to 34.18 Mn Ha a year ago. The farmers preferred to increase wheat acreages as the wheat prices remained lucrative throughout the year and the realisation was good as compared to other key Rabi crops, even the fallow land was brought under wheat cultivation. From the beginning of the season till January, we estimated wheat production to increase by 13 per cent from the previous year to 110 MMT, thanks to the higher sowing progress amid better subsoil moisture left by the late-season rains. Though the above-normal temperatures remained negative for crop growth in the first fortnight of December, however, with the cold wave and dip in temperatures across the Northern and North Western parts of India in late December and the first fortnight of January boosted crop health.

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The temperatures play a crucial role in the wheat crop during the critical growth stages. The increase in temperatures across the Central and Northern wheat-growing belt of India for a couple of days is raising concerns about crop yields. The maximum temperatures across Madhya Pradesh, Gujarat, and Maharashtra are touching 30 degrees Celsius while concerns are also developing in Punjab, Haryana, and Uttar Pradesh where the maximum temperatures are gradually increasing day by day. The crop is in the jointing/booting to anthesis stage across the key wheat-growing states of India. The increase in temperatures would negatively impact the grain filling of wheat crops and may also lead to shrivelled grains. Also, the above-normal temperatures across the North Indian wheat belt are also raising concerns about lower yields. Hence, we believe wheat production would fall below 100 MMT.

Now, the concern is back-to-back lower wheat production would keep the supply situation tight in the coming crop year as well. Even the central pool wheat stocks as of 1st February was 15.44 MMT which fell to nearly 5-year lows and it would be difficult for the Central government to run the food security schemes in the coming year if a substantial amount of wheat is not procured which may again add fuel to the food inflation.

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Given the current wheat prices which are still ruling Rs. 400 – 500 above the minimum support prices (MSP), it would be quite challenging for the government to procure wheat unless they announce any bonus over MSP. Meanwhile, the government is exploring options like imposing a stock holding limit for wheat and releasing additional quantities of grain over and above the 30 lakh MT already approved for Open Market Sale Scheme (OMSS). Besides, the government will continue with the ban on wheat exports imposed last year till the end of the 2023-24 marketing season. Also, the other way of cooling down the prices is by decreasing the import duty on wheat from 40 per cent to 0 per cent. Removing the duty would not create any influx of imported wheat as the international wheat prices are on the higher side and there is no parity even at zero duty, however, this will change the market sentiments. After the government announced to sale of wheat under the Open Market Sale Scheme on 25th January, the wheat prices in Delhi have corrected by around 21 per cent to date from the record highs of Rs.3,225 per quintal. Still, the prices are higher than the minimum support price of Rs.2,125 per quintal and it could be challenging for the government this year also to replenish their granaries by procuring a substantial amount of wheat in the ongoing crop season.

On the prices front, we believe the downward correction in wheat prices would be limited even during the peak arrival season as lower crop size and tighter central pool stocks due to back-to-back lower wheat production would keep the prices on a bullish tone.

(Indrajit Paul is the Senior Manager – Commodity Research at Origo Commodities India. Views expressed in the article are author’s own. Agriculture Post doesn’t assume any responsibility for the same.)

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About Indrajit Paul

Indrajit Paul is the Head of Agri Commodities Research for a company based in India. He is a seasoned commodity research professional with broad expertise in grains, oilseeds, edible oil, cotton, coffee, sugar and livestock feed research for global and Indian markets.

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