India's wheat procurement gathers speed amid unseasonal rains

The uptick in India's wheat procurement amid unseasonal rainfall may bring down domestic wheat prices, government officials told S&P Global Commodity Insights.

As of April 30, wheat procurement in marketing year 2023-24 (April-March) jumped to 22.3 million mt, compared with total purchases of 18.8 million mt in MY 2022-23, according to data released by nodal food procurement agency Food Corporation of India.

India plans to buy 34.2 million mt of new wheat crop from local farmers in the procurement season that started in April. Government purchases staple food grains -- wheat and rice -- from farmers at minimum support prices to run various social welfare schemes and maintain buffer stocks for emergencies.

"The rise in the government stocks is likely to push down the prices further in the coming weeks. Higher government stocks usually allow the government to offload stocks in open markets in case of a price rise in future," an official with the food ministry said.

A rise in the government procurement has also pushed down wholesale wheat prices. On May 4, wheat was sold at Rupee 21,220/mt ($259.8/mt) in the benchmark Indore market, 31.5% lower than the record high of Rupee 31,000/mt on Jan. 25. "Wheat prices are likely to decline further during the next few weeks," a trader based in Indore said.

Rain and hail during March and April damaged a small portion of India's wheat crop just before harvesting, forcing the government to ease procurement norms to rebuild stocks and help farmers, the same official with the food ministry said. "Procurement has gathered momentum over the past two weeks after the procurement norms were tweaked," the official added.

The government has maintained that it will continue the export ban imposed in May 2022, until it replenishes government wheat inventories. As of April 1, wheat stocks depleted to a six-year low of 8.3 million mt.

India -- the world's second-largest wheat producer -- banned wheat exports after a sharp rise in temperatures clipped production in 2022, but amid a rise in export demand triggered by the supply tightness due to the Russia-Ukraine war. The rise in wholesale prices, aided by export demand during March and April 2022, had weighed on the government's purchases.

Farmers are selling damaged wheat crop to state-run procurement agencies and the good quality crop to private players, a New Delhi-based trader with a global firm said. "The government's purchases are likely to cross 30 million mt which might be enough to run the welfare schemes and allow it to ease the export ban," the trader added.

However, the government is yet to take a call over export restrictions, another official with the food ministry added.

Output scenario

In February, India's agriculture ministry estimated the wheat output for the crop season 2022-23 (July-June) at a record 112.2 million mt, compared with 107.7 million mt in the previous year.

Market participants are, however, skeptical of India's wheat harvest estimate. According to an S&P Global survey of 11 analysts and traders, India's wheat harvest is expected at 107 million-108 million mt in crop season 2022-23.

There is a possibility that the Indian government may reduce its wheat harvest estimate as unseasonal showers and hailstorms led to a damage to the wheat crop during March, sources in the agriculture ministry said.

According to government sources, wheat production estimates for crop season 2022-23 may be reduced by 1 million-2 million mt year on year from the projected output of 112.2 million mt.

The government has decided to conduct a preliminary survey of the crop and is awaiting detailed reports from state administrations, an official with the agriculture ministry said.