Indian wheat exports to fall, despite record crop

India's rise as a major wheat exporter will go into reverse despite the prospect of a record harvest, with weak prices and a wish to avoid an international trade row, and internal political disputes, keeping a lid on volumes.

Indian farmers are poised for a record wheat harvest this year of 96.0m tonnes, up some 3.5m tonnes year on year and beating the previous record of 94.9m tonnes set in 2012, the US Department of Agriculture's New Delhi bureau said.

While the average yield looks like easing to 3.0 tonnes per hectare, down 0.2 tonnes per hectare from last year, sowings showed an "unprecedented increase" of 6% to a record 31.5m acres, boosted by benign weather and rising government support prices.

The prospect of elections in April has encouraged some states, such as Rajasthan and Madhya Pradesh, to offer bonuses of 1,500 rupees ($24 per tonne) on top of the government mandated minimum support price, the bureau said.

Subsidy factor

However, the bigger harvest will not translate into stronger exports thanks to the high level of the government's price guarantee, which the bureau said had risen to the equivalent to $225-250 per tonne.

Getting shot of this wheat on export markets would require India raising support for wheat exports, for which it currently has a floor price of $260 a tonne for shipments from state supplies implying a subsidy once storage and administration costs are included.

"With international prices expected to remain depressed during the upcoming marketing year, it will be very difficult for the government to export wheat with $260-per-tonne floor price," the bureau said.

"Due to the increase in the procurement price for the upcoming season, the government will have to raise the subsidy significantly higher to off load any wheat in the export market."

Rivals' concerns

However, India's wheat export regime has already prompted rival exporters Canada and the US to raise questions at the World Trade Organization.

"The increasing implied subsidisation of government wheat exports is a major concern for the government on meeting its WTO commitments," the bureau said, adding this meant that India looked "unlikely to lower the export floor price below $260 per tonne".

US soft red winter wheat, the type traded in Chicago, the world's benchmark wheat futures market, was being offered at $266.50 a tonne in Gulf of Mexico ports at the end of last week.

A lower floor price for exports would also likely provoke opposition within India, given that domestic users are offered subsidised sales through the so-called Open Market Sales Scheme at $248-281 per tonne.

'Starting to displace Aussie wheat'

The USDA bureau forecast India's exports slumping 45% to 3.0m tonnes in 2014-15, well below the record 8.65m tonnes reached in 2012-13, when the country eclipsed the likes of Argentina, Kazakhstan and Ukraine as a wheat shipper.

A fall in the rupee, improving the competitiveness of Indian shipments, or a jump in world prices would be needed to improve prospects.

India's rise as an exporter since August 2012, when it opened government stocks to shipments, has been a large concern to rivals, given the country's huge supplies it is expected to close this season with some 20m tonnes in stocks besides the large level of government subsidies.

Separately, Jaime Nolan Miralles at broker FCStone noted on Wednesday that "Indian wheat is starting to displace Aussie wheat into the Indonesian market".

'Growing concern'

However, the USDA bureau noted some long-term challenges to India maintaining its growing wheat production, one being "unscientific irrigation practices and overexploitation of ground water", which is increasing soil salinity besides reducing moisture reserves.

"The depletion of irrigation water resources is likely to put pressure on wheat cultivation in north India in the next few years, forcing farmers to explore less water-intensive crops, like corn, pulses and oilseeds."

The bureau also noted a "growing concern among policy makers and researchers about the vulnerability of the wheat crop to global warming and changing climatic conditions.

"According to some local research, a 1-degree Celsius rise in temperature during the growing season can result in a 3-7%decrease in grain yields."

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