Wheat Monthly Report Oct, 2012

Executive Summary:
The main topic of conversation in the wheat complex last month was whether wheat prices would come down in domestic market, export would continue in the range of $300 to $315 per T on FOB basis and how much quantity would govt. allocate for bulk users to control the spiralling prices. Besides, likely wheat production and coverage area in 2012-13 crop year gained weight age for discussion among agri experts. Govt.s intention to augment supply for bulk users and higher allocation for i ncoming months has softened wheat prices by Rs 150 per qtl in last two weeks. Higher allocations for domestic market, lower export demand and govt.s urgency to offload maximum wheat have changed the inner tone of the market. Wheat is likely to trade steady to slightly weak in the month of October. Export will continue but with slow pace as prices offered by importers/multinationals are not very attractive in comparison to Australia and USA. Appreciation in INR too has impacted adversely the pace of export.

Wheat sowing in India is likely to be delayed by two to three weeks this year due to late sowing of major kharif crops, especially paddy. However, no major impact on total area in comparison to last year seems to be in sight barring Gujarat, Uttrakhand, Jharkhand and Haryana. Better rainfall in last phase has provided adequate moisture level for wheat sowing. However, delayed sowing and likely lower availability of water just before maturity stage in non irrigational growing areas may impact. Higher temperature than normal in Feb, March and April unlike last year too may reduce the final size of the crop. Overall view of farmers/traders received before sowing indicates lower production by 3 to 4 percent in comparison to last year. Weather condition will play crucial role in deciding the final output. Farmers have started preparing wheat fields and sowing will start from mid Oct. Domestic Market Dynamics: Domestic wheat markets continued to trade range bound due to lower demand from bulk users like flour miller, exporters. Despite higher allocation through various channels upward correction is being seen in bench mark markets. Prices of wheat in Rajasthan, Delhi, M.P., and Gujarat have improved to some extent. However, one sided uptrend is unlikely as higher allocation and expectation of higher area coverage may restrict gain further. Wheat area may improve this year as farmers have realized better price due to higher MSP and continuous export demand. Farmers pre sowing intention shows better coverage this year in Rajasthan as they prefer wheat sowing in guar field. Besides, there is ample water available in Gandhi Sagar Dam and it will facilitate irrigation at maturity stage. However, area under wheat in Saurastra region may decrease drastically due to

lower rainfall in these regions. Almost 80 percent wheat area may be used for other cash crops like chana, castor, cumin and cotton. Wheat area in Punjab, Haryana, Uttar Pradesh and Bihar is likely to be stable like previous year. So there is no fear of any major decrease in total area coverage this year. However, temperature in Feb, March and April will be very crucial for deciding the final size of the crop. Weather remained favourable throughout the season last year and so India could realized the highest yield. Repeat of same weather condition is unlikely this year and resultantly the yield too. However, overall area may exceed 290 lakh ha. this year. Exporters and private trade are likely to start buying once again from mid October when prices are supposed to be stabilized in the domestic market. Supply and demand side is likely to remain balanced and so cash market too should trade steady. However, the govt.s allocation will remain the major price driving force in the months ahead as maximum stock is in govts custody. Marketable surplus with farmers too are depleting fast.
Agriwatch Revised Wheat Balance Sheet:
All units in million tonnes Carry in Production Imports Total Availability Consumption Exports Total Usage Carry out Av Monthly Consumption Stock to Month Use Stock to Consumption Ratio

Wheat Monthly Report Oct, 2012

2009-10
13.42 80.80 0.15 94.37 78.15 0.10 78.25 16.12 6.51 2.48 0.21

2010-11
16.12 86.81 0.00 102.93 80.00 1.50 81.50 21.43 6.67 3.21 0.27

2011-12*
21.43 93.90 0.00 115.33 81.50 2.00 83.50 31.83 6.79 4.69 0.39

2012-13* 31.83 90.00

0.00 121.83

83.00 4.00
87.00 34.83 6.92 5.04 0.42

*We have considered private stock too in the Crop Year 2011-12 & 2012-13

As per pre sowing intention and feedback received from agri experts wheat production this year may dip almost by 4 percent on expectation of delayed sowing in paddy filed,lower area coverage in Gujarat and area shifting in minor growing states to other cash crops.If production falls short by 3 percent, total production will come down by28.17 lakh tone,if it comes down by 4 percent, production may decrease by37.56 lakh tone from last year. if production decrease almost by 4 million T,it will not going to impact total availability. Situation on storage front may be even more grimmer despite production loss around 4 million T as the above given table shows.

Total availability of wheat will go up from 115.33 million tonne to 121.83 million tonne. Despite higher domestic usage (1.5 MMT) and 2 million tonne more export carryout will increase 3 million T to 34.83 million T in 2013-14. For maintaining carryout at current years level India need to ship out at least 7 million T in this marketing year. Even Av monthly consumption, stock to month use and stock to consumption ratio have been continuously increasing as depicts the above given balance sheet. Higher export in the range of 6 to 7 million T will not hamper domestic availability if release from govt.s stock remains systematic and based on requirements in various regions. Regular release will ensure stability in the market. Month wise wheat stock position in central pool:

Wheat Monthly Report Oct, 2012

Monthwise wheat stock in centralpool

550 500 450 400 350 300 250 200 150 100 Jan Feb March April May 2010 June 2011 July Aug 2012 Sep Oct Nov Dec Fig in lakh tonne Fig. In lakh T 2010 2011 2012

Wheat stock with govt. as on 1st of the each month:

Jan

Feb

March

April

May

June

July

Aug

Sep

Oct

Nov

Dec

230.92 215.4 256.76

206.23 193.73 234.25

183.88 171.57 212.55

161.25 153.64 200

337.13 313.75 381.94

351.62 378.32 489.7

335.84 371.49 498.08

320.47 358.75 475.26

298.62 336.2 461.6

277.77 314.2 431.53

255.58 296.71

239.14 276.56

Buffer Norms for wheat and rice:

As on 1st April 1st July 1st October 1st January Buffer Norms Rice 122 98 52 118 Wheat 40 171 110 82 Total 162 269 162 200

Wheat Monthly Report Oct, 2012

Strategic Reserve Rice 20 20 20 20 Wheat 30 30 30 30 Grand Total 212 319 212 250

Wheat stock in govt.s granary is quite higher than actual requireme nt on 1st October as the above given table shows. Against the actual requirement of 140 lakh T of wheat on 1st October, stock in central pool was registered at 431.53 lakh tonne, higher by three times and it may complicate storage problem further in the months ahead as rice procurement has started now and is expected to pick up in Nov. Offloading through export should be prioritized to lighten the burden of accumulated wheat stock in time. Higher allocation for domestic market will not be enough to cut the exiting stock pile down. Indias Wheat Production in Global Context:-

Year
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 E

World Production in million ton

584 569 555 627 619 596 607 685 679 651 696 662

Indian Production in million ton

72.77 65.76 72.15 68.64 69.35 75.81 78.57 80.68 80.80 85.93 93.90 90.00

Indias % share in global wheat production

12.46 11.56 13.00 10.95 11.20 12.72 12.90 11.76 11.90 13.22 13.50 13.51

Indian wheat production share in global wheat production has been has been increasing steadily buoyed by good monsoons, adequate procurement on higher MSP and increasing possibility of

higher export. Global production has seen dips more often due to changing weather patterns especially in United States of America, Australia and Russia. The US, Australian and Russian production remains the major price driving force in the global wheat market. The government holding of wheat stocks has been increasing each year and now stands at close to more than a third of the production. This has bearing on the private stock availability for domestic and international trade. Production figure for 2012-13 is preliminary estimate and may vary depending on price, weather condition and other seasonal factors. Wheat production and procurement YOY basis:

Wheat Monthly Report Oct, 2012

Wheat Production and Procurement by Government in Million tonnes

100 80 60 40 20 0 2000-1 2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 2007-8 2008-9 2009-10 2010-11 2011-12 Wheat Production Wheat Procurement by Government

Wheat procurement continued to increase from 2008-09 and touched its record in 2011-12 on back of higher production, higher MSP and govt.s policy of higher procurement. Percentage of procurement against production reached almost 40 percent and created severe problem on storage front. Higher procurement supported by export also created supply crunch in domestic market before time and prices unexpectedly touched Rs 1700 in the month of August. However, recent allocations and govts intention to augment supply in the months ahead have cooled down the bullish trend.

Wheat Monthly Report Oct, 2012

Average price trend month wise

q R u s i p t e a r l 1650 1600 1550 1500 1450 1400 1350 1300 1250 1200 Jan Feb Mar April 2010 May June 2011 July Aug Sept Oct Nov Dec

2012

Av. Wheat price has cooled down in last 15 days and we expect price to stabilize at current level. Despite recent decline prices are ruling higher in comparison to last two years in the months of Sep-Oct. Likely higher release is expected to restrict market. Besides, better sowing prospects and congenial weather will help market to trade at current level. However, lower release in the month of Nov and Dec may support market. Traders are optimistic that wheat market will remain steady in the weeks ahead. State wise price movement:

State wise price movement

Fig. in Rs per qtl. 2400 1900 1400 900

Prices Sept, 2012

Prices Aug, 2012

Prices Sept, 2011

Price trend domestic market:

State AP Assam Chattisgarh Gujarat Haryana Jharkhand Karnataka Kerala MP Maharashtra Nagaland Delhi Orissa Punjab Rajasthan UP Uttrakhand West Bengal Average Prices Sept, 2012 Prices Aug, 2012 Prices Sept, 2011

Wheat Monthly Report Oct, 2012

% Change(Over Previous Month) 9.16 0.75 -0.38 -3.79 4.47 6.96 0.32 2.1 2.74 -2.58 1.15 5.45 7.4 3.72 -2.07 7.82 4.16 11.9 % Change(Over Previous Year) 22.7 __ 10.56 45.8 34.77 13.19 8.37 6.99 40.22 22.6 __ 29.23 20.85 38.97 36.77 35.73 20.09 32.21

2225 2038.33 1813.33 1406.56 1396.04 1200 1321.6 1326.61 1195.41 1623.24 1687.22 1113.34 1404.21 1344.19 1041.93 1532.09 1432.45 1353.53 1744.54 1738.89 1609.75 2467.31 2416.67 2306.11 1511.06 1470.83 1077.62 1780.76 1827.87 1452.55 1469.07 1452.34 1350 1487.98 1411.01 1151.43 1442.56 1343.21 1193.63 1344.23 1296 967.25 1470.54 1501.68 1075.22 1415.34 1312.64 1042.77 1347.85 1293.99 1122.41 1395.9 1247.47 1055.83 1577.21 1529.86 1285.76 *Report Generation: As per the data reported by APMCs

Av. Price of wheat increased significantly in the month of Sep. However, in second half it declined on higher release and better production prospects. Lower demand for export too has impacted current market fundamentals and we expect wheat prices to trade steady at current level. However, govt.s release mechanism will remain crucial for price trend. Private stock is depleting fast and major consumers will completely rely on govt stock in the months ahead. FOB Indicative Quotes:
370 fig in $ per qtl. 320 270 220 6/1/2012 US Gulf FOB Ukraine 7/1/2012 France Russia 8/1/2012 England Argentina 9/1/2012 Australia Canada India

Indicative FOB wheat quotes

Wheat Monthly Report Oct, 2012

1550 1500 1450 1400 1350 1300 1250

Delhi Wholesale Monthly Prices

1200
1150 1100 Jan Feb Mar Apr May 2010 Jun 2011 Jul Aug 2012 Sep Oct Nov Dec

Monthly whole sale price of wheat started firming up from mid June and touched its high in Sept.end due to higher than expected offtake from domestic millers and exporters. Short supply in cash market and export parity drove market up continuously. However, with govts allocation prices have cooled down. We expect price to be stable at current level. Yearly Wheat Area and Production: Wheat Area (Mn Hectares) and Production (Mn Tonnes)
100.00 90.00 80.00 70.00

60.00
50.00 40.00 30.00 20.00 10.00

Area Production

Wheat Monthly Report Oct, 2012

Wheat Yield in MT/Hectare

3.20 3.10 3.00 2.90 2.80 2.70 2.60 2.50 2.40

Area under wheat has not increased in proportion to yield and total production in recent years as denotes the above given chart. Wheat productivity in major growing states has increased considerably last year due to favourable weather and better agricultural practices. Yield increased almost in every state. Stock status with govt. and with farmers and traders: Stock With Govt. Agencies June-12 July-12 August-12 Sept-12 Oct-12
Source: FCI and traders, Fig in million T

Stock With Govt. Agencies 48.97 49.80 47.52 46.16 43.15

Marketable surplus With farmers 4.5 2.5 1.5 1.0 0.8

Stock with traders 0.8 0.5 0.2 0.2 0.1

The above given table shows that maximum stock is in govt.s godowns . Even farmers stock too has come down to 1.5 million T. It is lower by 5 lakh T from previous year till date as higher

prices encourage them to sell more in the month of July and August. Traders have minimum stock this year as they have shipped out maximum this year. Indian FOB Quotes trend from Sep 2011 to Sept 2012 and export under OGL

Wheat Monthly Report Oct, 2012

Wheat export under Wheat (Lakh Average FOB CBOT Average OGL T) Quotes(USD/MT) Quotes (USD/MT) Oct-11 1.3 215.90 242.79 Nov-11 1.8 225.41 234.05 Dec-11 1.35 230.79 228.41 Jan-12 1.05 237.07 237.73 Feb-12 0.8 239.53 240.81 Mar-12 0.9 244.02 241 Apr-12 1.15 236.89 235.13 May-12 2.55 252.15 236.73 Jun-12 3.45 256.64 245.82 Jul-12 3.1 296.12 318.27 Aug-12 3.75 310.07 328.89 Sep-12 2.1 314.48 327.44 Total 23.33 (Official) Indian FOB quote is likely to increase further with strong global market fundamental. However, in domestic market FOB should hover in the range of $306 to $310 per metric T in Oct-2012. Expected Price Range For Current month:
Market :Delhi Spot (mill delivery) Cash market (Steady) Future market (NovContract) Steady to weak Rs/per qtl. Rs 1500-1525 Rs 1525-1550

Wheat Monthly Report Oct, 2012

NCDEX Future market:

Wheat Nov contract is unlikely to sustain at current level. Higher allocation, better crop prospects and lower export demand will weigh on the future market fundamentals. Market may face tough resistance at 1550. The nearby support is 1450. Market is likely to trade in this range in Nov contract. International Trade Scenario & outlook: The strongest wheat fundamental is found in foreign wheat production. The North China Plains has suffered from a lack of moisture. The area of major concern is in the Black Sea Region. Updated Russian wheat production estimates keep decreasing. The last report registered 39-41 million metric tons. This would slow down their wheat exports to 10 million metric tons. Many believe this is a stretch. Rumors surfaced this week about Russia halting wheat exports in the near future. With current information, these would just be rumors. On the demand side, wheat sales out of the United States are exceeding expectations. Usually, high prices chase away export business and to a small extent this has occurred in the wheat. But, the weekly export sales report

showed 519,000 metric tons of wheat. Three countries, Japan, Mexico and Nigeria purchased wheat in quantities over 100,000 metric tons. Their need was met with high quality wheat. This years wheat market brings back memories of a couple of years ago when the wheat staged a small rally right after harvest and thirty days later the price escalated into the fall. The cause was a poor wheat crop in the Black Sea Region that took some time to recognize. Could history be repeating itself? At current improved weather condition global wheat market should stabilize near $325 to $350 Per T. Wheat production is likely to dip next season and maize will continue to support wheat market in near and medium term. Market is expected to dip in the short term.

Wheat Monthly Report Oct, 2012

IGC Wheat Balance Sheet (As on 29.09.2012)

IGC/29.09.12

(Quantity in MMT)
Million T Projection for 2012-13

2007-08

2008-09

2009-10

2010-11

2011-12 Estimated 23.08.2012 29.09.2012

Wheat

Production Trade Consumptions Carryover stocks Y-O-Y change Major Exporters

607 110 603 132 5 47

685 137 645 173 41 69

679 128 653 199 26 78

653 126 659 193 -6 72

696 145 691 197 4 70

662 133 679 180 54

657 132 679 175 -22 51

CBOT Future chart:

Wheat Monthly Report Oct, 2012

CBOT running contracts:

CBOT Futures Prices: Date: 05.10.12 CONTRACT MONTH Dec-12 Mar-12 May-13 July-13 Sept-13 Dec-13
5 Oct 2012 Week ago (28 Sept 2012) 1 Month ago(5 Sept) 3 Month ago(5 July) 6 Month ago(5 Apr) 1 Year ago % Change over previous year

315.05 319.18 319.45 308.71 310.09 314.13

331.58 335.16 332.96 318.54 319.18 321.38

318.81 323.50 324.05 312.84 313.21 315.41

311.19 314.31 313.30 310.18 310.36 314.04

250.11 256.35 261.68 262.78 266.82 272.15

271.05 277.11 278.95 271.69 276.84 279.78

13.97 13.18 12.68 11.99 10.72 10.94

Indicative FOB Quotes:

Variety % Change over Prev. Year 02.10.12 Week Ago 25.09.12 Month Ago (September) 3 Months Ago (July) Year Ago (Oct.)

USA (Chicago) France United Kingdom Australia Russia Canada(Spot) Ukraine Argentina

RTRS 2srw FCW3 Feed wheat CWRS SRW Q2FW SRW SRW

22.41 15.30 15.14 30.91 22.26 22.90 22.46 21.60

345.40 335.30 322.90 351.72 337.00 304.80 334.00 338.00

350.04 336.70 329.60 349.00 335.00 306.00 332.50 345.00

338.60 335.60 323.30 344.42 307.00 305.30 309.50 340

292.50 295.00 285.00 305.33 298.00 260.80 295.00 285

268 284 274 243 262 235 259 265

Wheat Monthly Report Oct, 2012

Overall view:

Wheat global market is likely to trade firm on back of lower IGC report, lower carryout in US and lower exportable surplus in Australia and Russia. Concern over weather in major growing region and increasing demand for feed wheat is expected to support wheat market in the medium term. Global wheat market is likely to trade in the range of $335 to $375 per MT in Nov Dec.higher maize price too is supportive for wheat market. Long term outlook depends on corn prices and Russian export policy for 2013 amid weather development in various wheat growing countries.

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