India’s wheat procurement slows on higher spot prices, moisture content in grain

India’s wheat procurement program slowed in the week to April 19 as arrivals dropped due to firm local prices and high moisture content in the crops amid concerns over the government’s ability to maintain wheat stocks in its inventories, officials at the Food Corporation of Indiatold S&P Global Commodity Insights.

The government has planned to aggressively purchase wheat to replenish its stocks at state-run warehouses on the back of slightly higher production, officials said. The government plans to procure around 33.5 million mt wheat produced in marketing year 2024-25 (April-March), nearly 28% higher than the actual procurement of 26.2 million mt a year prior.

The government has pegged India’s wheat output in crop year 2023-24 (July-June) at 112 million mt, slightly higher than the 110.55 million mt harvested in the previous season. However, an S&P Global Commodity Insights survey of 13 analysts and traders found India’s wheat harvest in MY 2023-24 is likely to be slightly lower year on year, at 107 million-108 million mt.

India’s wheat stocks in state-run inventories depleted a 16-year low to 7.5 million mt at the start of April, down from 8.4 million mt a year ago.

Wheat stocks in government warehouses declined rapidly as the government sold record quantities to augment domestic supplies and rein in rising prices amid poor crop yields during two previous seasons.

“The crop that is coming for procurement at different sections of the country have higher moisture content that allowed so we are unable to buy it,” an official at the FCI said. The FCI buys wheat with moisture content from 12% to 14%.

The moisture content in the crop is higher due to recent showers over key wheat growing regions in northern India. Between March 1 and April 21, northwest India received 98% higher than normal rainfall, according to the India Meteorological Department.

Apart from higher moisture issues, arrivals at the government procurement centers have slowed due to higher prices than the government assured minimum support prices at spot markets.

The Indian government has announced the support price for wheat at Rupees 22,750/mt ($272.71/mt) for MY 2024-25, according to data from the agriculture ministry.

However, spot prices have increased sharply higher than the MSP over the past few weeks, traders said. At a key spot market Indore, Madhya Pradesh, wheat was sold at Rupees 24,000/mt on April 21, up nearly 7% on the month, they added.

“Higher spot prices are likely to discourage farmers to sell the crop to the government at a lower MSP,” another official said. “They will look to sell their crop for the better returns.”

A decline in procurement in MY 2024-25 may be crucial concern for the government as it has also extended the scheme to distribute free food grains to over 810 million beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana for five years effective Jan. 1, 2024.

The move is aimed at ensuring food security to the beneficiaries, according to a government statement. The scheme, which was set to end this December, has been extended ahead of the national elections underway.

However, if the government falls short of its procurement target, it may have to look for cheap imports or reduce import duty on the grain to ensure adequate domestic supplies. Despite the tight supply, it has been resisting calls to reduce or remove the 40% import duty on wheat.

The government is also likely to extend export restrictions on wheat until March 2025. India had banned wheat exports in May 2022, after domestic supplies tightened amid a drop in output.

In MY 2022-23 (April-March), India planned to export nearly 10 million mt of wheat but ended up shipping nearly 5 million mt.

Tags: grain, prices, wheat, India, crop, stocks, procurement, output