Low acreage, output make traders place a bullish bet on wheat

NEW DELHI: The wheat market is likely to remain bullish this year due to lower acreage and output along with higher than normal temperature. While this may impact farmers adversely, for traders wheat will offer a more attractive valuation than other commodities such as coriander, pulses and soyabean.

"Wheat is a good investment buy as it is the cheapest commodity in the agro market. Investors and stockists will go for it; they can make 20-30 per cent in the next six months," said Biren Vakil, chief executive of Paradigm Commodity Advisors, an Ahmedabad-based commodity derivative specialised firm.

As on January 8, wheat has been planted on 28.2 million hectares, 6 per cent lower than the 29.9 million hectares sown by this time last year, according to the agriculture ministry.

Further, a warm winter this year is expected to impact wheat production and lead to low procurement by the Food Corporation of India.

"The government should buy wheat in Chicago futures now and sell later in September as they did in 2005-06, thereby hedging their position," said Tejinder Narang, former director of PEC, a state-run international trading company that has expertise in agricultural trade.


In 2005-06, wheat production was 68 million tonnes. Narang said that in that year the government had even prevented and threatened traders from buying from the local market. Traders and analysts said wheat production is likely to be 78-80 million tonnes, compared to 88.95 million tonnes in the previous year. In 2013-14, wheat production was 95.85 million tonnes. "A 10 million tonne decline in production will naturally lead to a spike in prices, not only in the domestic market but also in the international market," said Narang. This will lead to a higher dependence on imports for quality grain, he said.

ET View: First, Ascertain Targets & Stocks

The government must undertake a proper assessment of the wheat production target at the earliest. It should also assess its food stocks to determine how much wheat will have to be imported. A proper import timetable will have to set up to ensure that prices in the domestic market don't shoot up, and that stocks can be imported at best price.