India struggles to rebuild wheat stocks with purchases down 25% y/y

State-run agencies have bought 11.92m tonnes of wheat from farmers so far this season, down 25% on the 15.92m tonnes bought in the same period a year ago

A combine harvests wheat at a field on the outskirts of Ahmedabad, India, Mar 16, 2022. REUTERS

• Govt buys 11.92m T wheat so far vs 15.92m T yr ago

• Untimely rains raises moisture level, delay procurement

• Higher open market prices prompt farmers to sell to traders

India is struggling to replenish its wheat stocks, with purchases down around 25% on last year's levels due to untimely rains and higher open market prices, which encourage farmers to sell to private traders.

India's wheat inventories have dropped to their lowest in 16 years after two straight years of reduced crop yields prompted New Delhi to sell record volumes from its stocks to boost domestic supplies and bring down local prices.

If the world's second biggest wheat producer is unable to rebuild stocks as hoped, its ability to intervene in the market to calm prices may be curbed, and New Delhi may have to import wheat for the first time since 2017.

State-run agencies have bought 11.92 million metric tonnes of wheat from farmers so far this season, down 25% on the 15.92 million tonnes bought in the same period a year ago, according to data from the Food Corporation of India (FCI).

Untimely rainfall in northern states, particularly in Punjab, has delayed purchases, said a government official, who declined to be named.

"Harvested crops have higher moisture content. It is forcing farmers to wait for them to dry before selling to the government," he said.

State-run agencies have procured 3.5 million tons of wheat from Punjab, down 49% from a year ago, the data showed.

Wheat prices in the open market are above 2,400 rupees ($28.81) per 100 kg, compared with the government's fixed minimum buying price of 2,275 rupees.

In the past two years, farmers have sold crops to the government at a lower price during the summer, only to see prices jump during the winter, said a New Delhi-based dealer with a global trading house.

"This year, many farmers are all about holding onto their stocks, hoping the prices will shoot up later on," said the dealer.

Private players are also active in the market as most flour mills and bulk buyers had almost exhausted their stocks before the start of the new season, said a Mumbai-based trader.

The trend suggests the government won't be able to achieve its procurement target of 30-32 million tons, setting the stage for the imports, the trader said.