Wheat Exports From India Heading for Record as Futures Rise

May 09, 2014 5:18 am ET

(Updates with prices in fifth and 11th paragraphs.)

May 9 (Bloomberg) -- Wheat shipments from India, the world’s second-biggest grower, may climb to an all-time high as U.S. prices rally because of drought and on concern Black Sea supplies will be disrupted, according to an industry adviser.

Sales may reach 8 million metric tons to 10 million tons in the 12 months started April 1, said Tejinder Narang, who was a director at PEC Ltd., a state-run trading company, for about 16 years through 2008. That exceeds the previous record of 6.8 million tons in 2012-2013, U.S. government data show. Traders sold 1.3 million tons for April-July shipment from the new crop, mostly to the Middle East and Southeast Asia, says Vijay Iyengar, managing director at Agrocorp International Pte.

Wheat advanced 21 percent since January, the biggest rally to start the year since at least 1960, as drought eroded U.S. yields and violence threatened supplies from Ukraine and Russia. Supplies from Canada, the second-biggest exporter, are still suffering a backlog even after the government ordered railways to boost shipments. The rally may help India find buyers for its record harvest and drain state stockpiles that are more than double the government mandate.

“The current market is juggling between Canadian logistics and Black Sea politics,” said Singapore-based Iyengar, who has traded commodities for more than two decades. “If the Black Sea situation doesn’t improve we’re looking forward to a much firmer market.”

U.S. Crop

Wheat dropped 0.6 percent to $7.3075 a bushel on the Chicago Board of Trade by 5:07 p.m. Singapore time. Futures reached a 14-month high of $7.44 on May 6. U.S. farmers may harvest the smallest winter-wheat crop since 2006 after freezes damaged yields and drought conditions persisted in the Great Plains, according to a survey of 20 analysts and traders by Bloomberg. Russia is set to be the fifth-largest exporter this year, followed by Ukraine, USDA data show.

Russian supplies are offered at $297 per ton for delivery by early July with freight charges of $40 per ton to the Middle East, Narang said. Indian exporters are selling at $285 with transport fees of $20, he said. There’s a lack of buyers for Ukrainian supplies because of the political situation, said Narang who is based in New Delhi. India exported 4.2 million tons from April 1, 2013, to March 28, trade ministry data show.

“The export market provides a better liquidity door for the farmers other than the government and domestic mills,” Iyengar said in an e-mailed response to questions. “Export has been driving current prices.”

Domestic Prices

The rush of shipments is boosting local prices, increasing costs for flour millers, M.K. Dattaraj, former president of the Roller Flour Millers Federation of India, said by phone May 6. Dattaraj said he’s paying 1,815 rupees ($30.2) per 100 kilograms (220 pounds) for delivery in Bangalore from Allahabad, a distance of more than 1,000 miles, compared with as low as 1,700 rupees a year earlier.

“We were expecting prices to fall below the minimum price set by the government but that didn’t happen,” said Dattaraj, who buys 35,000 tons a year. “Export is definitely playing a role in this price. We are paying higher this year. It will impact flour prices.”

The government raised the minimum price paid to growers to an all-time high of 1,400 rupees for the 2013-2014 crop. State stockpiles of wheat totaled 17.8 million tons on April 1 compared with the buffer requirement of 7 million tons, according to the Food Corp. of India.

Export Demand

Wheat for June delivery rose as much as 0.4 percent to 1,601 rupees per 100 kilograms on the National Commodity & Derivatives Exchange in Mumbai, the highest for the contract since March 28.

“Local prices are rising because of export demand,” said Harish Galipelli, head of commodities and currencies at JRG Wealth Management Pvt. in Hyderabad.

India’s wheat output will probably climb to a record 95.6 million tons in the year ending June, from 93.5 million tons a year earlier after farmers boosted planting because of the highest ever domestic prices, according to the farm ministry.

“If I were to advise somebody who is sitting on a huge stockpile of grain at this time of the year I would say take advantage of the situation,” said Abdolreza Abbassian, senior economist for the UN’s Food and Agriculture Organization. “These are actually very good times for exports. If production numbers do materialize compared with the forecasts I don’t see any reason why prices should go any higher.”

World output in 2014-2015 will reach an all-time high for a second straight year of 713.1 million tons, even with smaller U.S. and Black Sea crops, says Memphis, Tennessee-based researcher Informa Economics Inc. Global stockpiles on May 31 will be 5.8 percent more than a year earlier, the first increase since 2010, a Bloomberg survey of 15 analysts showed.