Big guns gear up for encore in mandis

Nothwithstanding the controversy last year over private procurement of wheat, domestic and multinational companies are getting set for another round of large-scale purchases this rabi season.

With early arrivals in mandis suggesting a good rabi crop, major private buyers like ITC, the Adanis, the Australian Wheat Board, Swiss major Glencore Grain India and Cargil have started booking huge warehouse capacities in anticipation.

The government is targetting a wheat output of around 74 million tonnes. Traders expect the target to be achieved if the cold continues through the season. "Yields will drop only if temperatures rise," said a multinational trader.

Flour millers typically prefer to buy wheat through multinational traders because they can leverage their high-volume purchases and bulk warehouse discounts to access cheaper credit lines.

Flour millers access credit lines at 14 per cent, whereas big private traders are charged 11 per cent -- which represents an increase of 2 percentage points over the last season.

The cost of finance is expected to play a significant role this season, given the anticipated rise in wheat prices on the back of a higher minimum support price of Rs 750 a tonne announced by the government, as against Rs 650 last year.

Further, private traders expect to procure wheat mostly from Madhya Pradesh, Rajasthan, Uttar Pradesh and Maharashtra, where its quality is superior and, therefore, the prices higher.

"We expect wheat prices to fall as long as the crop continues to arrive in mandis," said Pankil Shah, head, commodities, Motilal Oswal Commodities, adding, "but they will not fall much given the current levels of demand and may rise further if temperatures increase."

Last year, private traders were accused of hoarding wheat and contributing to record-high prices of Rs 1,250 a tonne.

Private traders say their procurement this year is unlikely to impact the government's annual target since its procurement is mostly limited to the largest producing states of Punjab and Haryana, where the quality and prices are lower.