India reaps reward of bumper wheat crops as world exports shrink

India is poised to triple wheat exports this year to a higher-than-expected, record 6 million tonnes, helping plug a shortfall in lower-quality grain supplies and keep a lid on global prices.

Five years of bumper harvests have created unruly, large stockpiles of wheat in India at a time when Australia and Russia, the world's second and third largest exporters, face shrinking production due to adverse weather.

The amount India is set to export is paltry in a global trade of nearly 140 million tonnes, but it will fulfil the needs of the biggest buyers of lower-quality wheat in the Middle East and Africa as global supplies ease.

"The magnitude of Indian exports is not going to be enough to change the global trade balance but certainly what it means is that it frees up availability of lower quality wheat," said Sudakshina Unnikrishnan, commodities analyst at Barclays Capital in London.

"We don't have those massive amounts of lower quality wheat that we had last year," she told Reuters. In 2012, Indian wheat exports stood at 2 million tonnes.

Larger exports from India will help cap a rally in the benchmark Chicago wheat market which jumped 1.4 percent on Friday after the US Department of Agriculture pegged US inventories at a four-year low of 716 million bushels at the end of the crop marketing year. The United States is the world's biggest wheat exporter.

Global wheat supplies are likely to tighten further with the United States declaring much of the central and southern wheat belt a disaster area last week due to persistent drought. Farmers face dismal prospects for the spring and summer due to the drought and lower-than-expected plantings, analysts say.

Wheat ended 2012 as the best performing commodity, gaining 19.2 percent among the 19 commodities in the Thomson Reuters-Jefferies CRB index as the market was buoyed by lower production in Australia and the Black Sea region.

India's record crop coincides with a decline in shipments from its main rivals for lower-quality wheat. Prices are also at least $20 cheaper per tonne than similar Australian grain.

Australia produced a record crop at the end of 2011 but untimely rains

reduced the quality. A year later, wheat production fell by more than a quarter due to dry weather and drought is also expected to halve Russia's wheat exports this year to 10.5 million tonnes.

Burdensome Stocks

India, the world's second-biggest wheat producer, usually consumes most of its crop, but a government intervention scheme and favourable weather have boosted production, and surpluses.

Last year, wheat production rose to an all-time high of 93.90 million tonnes while consumption stayed the same at around 76 million tonnes a year.

This year, the crop is expected to be even bigger, creating yet another headache for the state-procurement agency, the Food Corp. of India, which has resorted to storing wheat in open fields under tarpaulin as silo space has run out.

The government, grappling with wheat stocks of 34.4 million tonnes, or four-times bigger than the official target, also needs to make way for the record 40 million tonnes of wheat it is expected to buy from local farmers. Those purchases will start arriving in less than two months.

"The cold wave in north India has been a boon for wheat and in all probability we will have a better crop than last year," Indu Sharma, chief of the state-run Directorate of Wheat Research, told Reuters.

"We'll have to keep an eye on February and March weather but the planting got off on a good note in October when rains led to higher soil moisture. The crop conditions have only been improving since then."

Traders sold an above-average 200,000-250,000 tonnes of wheat in December, indicating rising demand. Indian wheat is quoted at around $340-$345 a tonne, including cost and freight into the Middle East, and at a discount to Australian supplies.

The USDA, in its global supplies report, raised on Friday its estimate for Indian exports to 8 million tonnes in the year to June 2013 from 7.5 million tonnes.

Traders, however, say port congestion and a shortage of railway carriages will limit exports at around the 6 million tonne mark.

"They have the stocks and they can do much more than 6 million tonnes," said a Singapore-based trader whose company is currently doing brisk business in Indian wheat. "But there are constraints on the logistics front."