Feature: India's wheat stocks hit 16-year low as record sales, free distribution raise supply concerns

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India's wheat stocks in state-run inventories depleted to a 16-year low as the central government sold record quantities to augment domestic supplies and rein in rising prices amid poor crop yields during two previous seasons.

Wheat stocks in government warehouses were at 7.5 million mt at the start of April, down from 8.4 million mt a year ago, an official at the Food Corporation of India told S&P Global Commodity Insights.

Over the past decade, wheat stocks on April 1 averaged 16.7 million mt.

Despite the sharp fall in stocks, the government was able to meet the buffer and strategic reserve norms that mandate holding wheat stocks at or above 7.46 million mt April 1.

The government has planned to aggressively acquire wheat to replenish its stocks at state-run warehouses. 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.

India could not reach its wheat procurement target in MY 2022-23 and MY 2023-24, as heat waves weighed on the crop size.

However, the pace of procurement has slowed over the past week as recent showers in key wheat producing states have delayed harvest operations, traders said.

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 slightly lower year on year, at 107 million-108 million mt.

Recently, it has ordered mandatory declaration of wheat stocks available with traders, private warehouses, retailers and processors on a government-managed portal effective April 1 and every Friday thereafter, in a bid to ensure availability and prevent hoarding.

Record sales
The country has delved into state reserves to sell wheat to bulk consumers, as millers to try to curb domestic prices that have been above the state-fixed minimum buying price since the last crop was harvested.

India has also provided repeated extensions to the scheme of distribution of free food grains to over 810 million beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana for five years effective Jan. 1, 2024, has dampened the prospects for wheat and non-basmati rice exports in 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 amid ongoing state assembly polls and upcoming general elections next year.

However, if the government misses 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 banned wheat exports in May 2022, after domestic supplies tightened amid a drop in output. In marketing year 2022-23 (April-March), India planned to export nearly 10 million mt of wheat but ended up shipping nearly 5 million mt.

Geopolitical tensions
Benchmark grain, oilseed and vegetable oil futures rose overnight in the US and during morning trade in Asia April 19, reversing a bearish streak, after Israel launched a retaliatory missile attack on Iran, fueling fears of an escalating conflict in the Middle East.

Any potential supply bottlenecks may spur a rise in export prices of wheat from Black Sea origin, traders said.

The most active July soft red winter wheat contract on the Chicago Board of Trade rose 2.6% from the previous close to $5.675/bushel at 0320 GMT. As of 1640 GMT, the contract was trading at $5.62/bushel, up 1.67% from the previous close.

In the EU, the Euronext milling wheat contract for May was up 0.4% from the previous close at Eur206.50/mt ($219.88) as of 1640 GMT.

Platts, part of S&P Global Commodity Insights, assessed EU 11.5% wheat FOB CVB at $213.25/mt April 18, up $1/mt on the day.

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