Indian flour mills struggle as wheat prices surge to record high

High prices may raise inflation, influencing the central bank's interest rate decisions

A combine deposits harvested wheat in a tractor trolley at a field on the outskirts of Ahmedabad, India, Mar 16, 2022. REUTERS/Amit Dave/File Photo

Indian wheat prices jumped to a record high on Monday due to dwindling supplies amid robust demand from flour mills that are struggling to secure the grain to operate at full capacity, industry officials told Reuters.

The record prices are likely to lift retail inflation, which eased in November after surging to a 14-month high in October, and could influence the central bank's decision on interest rate cuts.

"Wheat supplies are limited in the market. Even after paying record prices, flour mills are unable to secure enough to operate at full capacity," said Ajay Goyal, managing director of Shivaji Roller Flour Mills.

In December, New Delhi lowered the limit on wheat stocks that traders and millers can hold to help boost the grain's availability and moderate prices.

But the curbs failed to bring down prices, which were trading around 33,000 rupees ($384.66) per metric ton in New Delhi, up from 24,500 rupees in April and far above the government fixed minimum support price of 22,750 rupees for last season's crop.

The stock limit failed to improve supplies and bring down prices, indicating that private players are holding few supplies, and the government needs to sell more wheat from its reserves to bulk consumers, said Pramod Kumar, a flour miller.

The state-run Food Corporation of India (FCI) is selling 100,000 metric tons of wheat to bulk consumers every week, but this is not sufficient to meet demand, as private players' sales are falling, Kumar said.

In November, the government announced plans to sell 2.5 million tons of wheat from state reserves to bulk consumers in the year ending March 2025. This is significantly lower than the nearly 10 million tons sold in the previous season.

The surplus wheat with the FCI is limited, preventing it from offering more to private players, said a New Delhi-based dealer with a global trade house.

Wheat stocks in state warehouses totalled 20.6 million tons at the start of December, slightly higher than the previous year's 19.2 million tons, but far below five-year average of 29.5 million.