wheatMUMBAI: Wheat futures in India, the world's second-largest producer, are likely to extend losses this week, after falling on Monday, due to an expected increase in supplies as the government decided to sell the grain from its warehouses to bulk users at lower rates.

 

Wheat prices in the local market rose sharply in November on buoyant consumer demand and on expectations of higher exports, pushing the near month contract on India's National Commodity and Derivatives Exchange (NCDEX) to a record high of 1,705 rupees per 100 kg on Saturday.

 

The volumes have now shifted to the December contract from the November contract.

 

The surge in wheat prices in the local market prompted the government to sell an extra 6.5 million tonnes to biscuit makers and flour millers at lower-than-market rates to check rising food prices.

 

The additional supplies, coupled with the prospects of a bumper wheat harvest, the sixth in a row to exceed demand, are likely to put pressure on prices in the local market, traders said.

 

"The government is sitting on huge stocks and it needs to offload some to make space for the next crop. Once it starts offloading stocks, supplies will rise and could put pressure on prices. Wheat prices could fall this week," said Chowda Reddy, a senior analyst with JRG Wealth Management.

 

India has been struggling to store huge stockpiles of wheat as inventories swelled after repeated bumper harvests, forcing the state-run Food Corp. of India to store grain in the open.

 

The South Asian nation has allowed export of wheat from government stocks, which are at 43.15 million tonnes, nearly four times the target level of 11 million tonnes.

 

Traders expect wheat shipments from India to rise on a potent combination of dry weather in the United States, drought in the Black Sea region and a forecast of rains at the time of harvest in Australia. However, this will not be enough to support local prices.

 

Last week, a tender was awarded at over $315 per tonne. That compares with US hard wheat, quoted at about $420 per tonne in Asian markets, and Australian prime wheat at about $375 per tonne.

 

Wheat shipments from India usually fetch lower prices due to quality concerns such as pest infestation and other bacterial infections, which can spoil some of the produce.

 

At 0710 GMT, the key December international contract was up 0.72 percent at $8.44 per bushel.

 

The most-traded contract for December on the National Commodity and Derivatives Exchange was 0.25 down at 1,591 Indian rupees per 100 kg.

 

Copyright Reuters, 2012

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