Wheat exports: Window of opportunity opens!

It appears that Pakistan may finally be in a position to sell the exportable surplus of wheat, as an upward trend is being witnessed in the commoditys export prices. Infeasibility of wheat exports-due to unfavorable price differential between pricier local wheat and international trade-has kept Pakistan from exporting its surplus wheat produce in recent years. Lately, the prices have been pointing northwards, with the Russian wheat exports priced as high as $312 a ton on July 4. Reuters reported last week that the cumulative wheat harvest this year from major Black Sea exporters-Russia, Ukraine and Kazakhstan-is expected to fall by 22 percent, due to "damage from a bitterly cold winter combined with a spring drought in Russia and Ukraine". Moreover, the wheat production outlook from International Grains Council-the multilateral association of major grains producing nations and regional blocks-is unfavorable for the next crop marketing year 2012-13 (MY13). As illustrated in the figure, IGC anticipates a four percent reduction in production and a one percent fall in consumption to lead to a nearly nine percent decline in MY13 carryover stocks. The IGC outlook is influenced by further deterioration expected in Russian production, despite improvements in the US and EU harvests. The global wheat trade is forecast to slip by 6.25 percent to 135 million tons in MY13, as exports from major wheat producing nations-Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine and the United States-are expected to decline by 18.3 percent. These expectations have already factored in the wheat export contracts in markets from the US Gulf Coast to the Black Sea region. If this pattern holds out a little longer, this is the opportunity for Pakistan to lock in attractive prices, get rid of the surplus, and free up the storage and financial space. India announced last week to export upto two million tons of wheat, for the same reasons. However, to export wheat at this point, a clearer picture must emerge vis-à-vis available reserves, food security requirements, and hence, exportable surplus. The MY12 wasn the best of years when wheat production declined to 23.5 million tons against last years production of 25.21 million tons. Factors including, but not limited to the Sindh floods and high prices of key inputs, led to decrease in both the acreage and average yield per hectare. The exportable surplus at the Federal level is not precisely known. It is estimated that PASSCO-the Federal grain procurement agency-has around 2.6 million tons of wheat in store. These reserves include some 1.434 million tons procured this season, and the rest are from the MY11 and MY10 procurement seasons. PASSCO has covered storage for upto 0.43 million tons of wheat and the rest is lying in open fields. Preliminary estimates suggest that the Punjab Food Department-the largest among provincial grains procurement agencies-has procured 2.8 million tons of wheat this season, raising its cumulative reserves to 4.5 million tons. Sources suggest that since the reserve maintenance requirement is 3.2 million tons, the Punjab government may mull over exporting some of the wheat in the near future. Around nine million tons of wheat is said to be available with PASSCO and provincial food departments combined. Seemingly, there is ample space to export, but sufficient domestic availability is a prerequisite. The decision makers need to realise that the much-negotiated barter deal with Iran is not maturing. It will be naïve to pass up the window of opportunity that attractive international prices have opened up.