Wheat prices jump to 6-month high on demand, limited supply

Wheat prices surged to a six-month high on Tuesday due to limited supplies and robust demand ahead of the festival season, dealers said. The increasing prices may prompt New Delhi to eliminate import duties on the cereal to bolster supplies and control prices ahead of key state polls and next year's general election. Rising wheat prices could contribute to food inflation and potentially complicate the efforts of both the government and the central bank to contain inflation.

"In all key producing states, farmer supplies have nearly come to a halt. Flour mills are struggling to obtain sufficient supplies in the market," said a New Delhi-based trader. Wheat prices at Indore in the central state of Madhya Pradesh rose by 1.5per cent on Tuesday to 25,446 rupees ($307.33) per metric ton, the highest since February 10. Prices have surged by nearly 18 per cent over the past four months.

The government should release stocks from its warehouses into the open market to avoid potential shortages during the festive season, said a Mumbai-based dealer associated with a global trade house.

As of August 1, wheat stocks in government warehouses stood at 28.3 million metric tons, an increase from the 26.6 million metric tons recorded a year earlier.

"Imports are necessary to lower prices. The government cannot increase supplies without imports," the dealer said.

India is considering cutting or even abolishing a 40 per cent import tax on wheat and lowering a limit on the amount of wheat stocks millers and traders can hold, Sanjeev Chopra, the most senior civil servant at the federal food ministry, said last week.

Wheat output rose to a record 112.74 million metric tons in 2023, up from 107.7 million metric tons a year earlier, according to the Ministry of Agriculture & Farmers Welfare. India consumes around 108 million metric tons of wheat annually. But a leading trade body told Reuters in June that India's wheat harvest in 2023 was at least 10per cent lower than the farm ministry's estimate.