After rice, India is set to turn a major exporter of wheat as well – thanks to surging international prices from Chinese stockpiling and ultra-low interest rate money increasingly finding its way into agri-commodity markets.
The US Department of Agriculture (USDA) on Tuesday upped its forecast of Indian wheat exports for 2020-21 (July-June) to 1.8 million tonnes (mt), as against its earlier estimate of one mt. That would be the highest ever in the last six years (see chart).
The trebling of shipments this year is mainly on the back of rising global prices. Wheat future contracts for March delivery at the Chicago Board of Trade exchange are currently at $244.35 per tonne, 18.3% higher than the $206.59 a year ago. This opens up possibilities for Indian exports to nearby markets, especially Bangladesh that buys mostly from Russia.
With the Russia government levying a 25 euros-per-tonne export tax on wheat effective from February 15 – in response to high domestic prices – Bangladesh “is beginning to shift its purchases towards India”, the USDA has noted in its latest world grain trade report. Bangladesh’s total wheat imports are placed at 6.6 mt in 2020-21.
Traders, however, believe that Indian wheat is still not competitive at the government’s minimum support price (MSP) of Rs 19,750 per tonne. The export price of wheat bought in Gujarat at that rate – after adding roughly Rs 1,200 towards cost of cleaning, bagging, loading and transport to Kandla or Mundra port – would be Rs 20,950 per tonne.
That works out to $286 per tonne or $290-plus, after adding exporter margins.
The above price is higher than the $275-280 that major exporters such as Australia, France, US, Russia and Canada are quoting for March-April shipments. Indian grain, moreover, fetches a $10-15/tonne discount relative to Australian premium white and Russian wheat having more protein content (12.5% versus 11.5%) and less foreign matter/impurities.
“In all, given our MSP, we are $25 or so per tonne costlier today,” said Amit Takkar, managing director, Conifer Commodities Pvt. Ltd.
That disadvantage can, of course, be overcome if wheat is sourced at below MSP from Uttar Pradesh, Bihar, Gujarat and Maharashtra, where not much government procurement happens. The new crop arriving in these markets from March onwards would be available at Rs 17,000-18,000/tonne. This wheat can be exported by rail rakes to Bangladesh or shipped to the Middle East (UAE, Oman and Bahrain) and Southeast Asia (Indonesia, Vietnam and Malaysia).
The USDA report, meanwhile, has also estimated India’s rice imports to have hit a record 14.4 mt in 2020, up from 9.79 mt and 11.791 mt of the preceding two years. The country’s closest competitors – Thailand and Vietnam – have seen their exports during this period fall from 11.056 mt to 7.562 mt and 5.5 mt and from 6.59 mt to 6.581 mt and 6.1 mt, respectively. Both have had drought-reduced crops, with Vietnam recently even contracting 70,000 tonnes of Indian rice for the first time, following China in December.
USDA has projected India’s rice imports in 2021 at 14 mt. Bangladesh, which imported just 80,000 tonnes in 2020, is expected to buy one mt this year. The beneficiary of it will again be India. “Despite concerns about the availability of shipping containers, which is impacting rice exports from Vietnam and Thailand, India can export to Bangladesh via rail and truck,” the report added.
All this export demand isn’t bad at a time when India’s own domestic production of rice and wheat touched an all-time-high of 118.43 mt and 107.59 mt, respectively, in 2019-20. Government agencies also procured a record 52 mt of rice and 38.99 mt of wheat. This year, too, similar bumper crops are likely.
The key driver of global price turnaround seems to be China. USDA data has forecast record Chinese imports of oilseeds (mainly soyabean) and coarse grain (maize and sorghum) in 2020-21 (October-September), apart from end-year stocks of rice and wheat. The reasons for its building strategic stockpiles of everything aren’t as fully clear as their effect on international prices.