1 At a Glance Area under wheat cultivation is on higher side compared to last year. During October 1 st to December 15 th, area covered under wheat cultivation was lakh hectares, up by 10.4% from lakh hectares planted in the same period last year. Climatic conditions are proving favorable for proper growth of Wheat. Production is expected to be well above 74 million tons.
2 Lower production held the markets tight last year In 2005, wheat prices in spot as well as futures market went up to cross 1100 levels. In spot market, wheat price has surged to reach its peak of Rs.1165 per quintal from Rs.750 per quintal quoted in the month of April The basic reason behind this surge is lower production of wheat in India. For , Indian wheat production was seen at million tons down from last year s production of 72 million tons. Unfavorable weather conditions during plant s grand growth stage resulted into drop in production, whereas the consumption remained well above 70 million tons. Increasing acreage pressurizing prices Current year s attractive prices for wheat prompted farmers to divert their lands from rabi oil seed to wheat across major producing regions of India. As a result, area covered under wheat cultivation has been increasing day by day. According to the Ministry of Agriculture, during October 1 December 15 area brought under wheat cultivation was lakh hectares, up by 10.4% from lakh hectares planted in the same period last year. Sowing Progress Progress of Wheat Sowing in India Oct Dec 14- Dec lakh hectares State wise sowing update From the beginning of the current rabi season, area covered under wheat cultivation is comparatively on higher side over previous year. Major increase in acreage was observed in Gujarat and Rajasthan. In Rajasthan, farmers have diverted their mustard field towards wheat cultivation because of lower price realized for mustard seed last year.
3 Wheat acreage in all the major producing states is increasing day by day. In Uttar Pradesh, a major producer of wheat in the country, area sown till December 15 is up by 12.08% to 7.68 lakh hectares from lakh hectares planted in the same period last year and in Madhya Pradesh it is up by 15.28% at lakh hectares from lakh hectares. State 2006 (As on Dec, 15) 2005 (As on Dec, 15) % Increase Uttar Pradesh Madhya Pradesh Punjab Haryana Rajasthan Bihar Gujarat Maharashtra Uttaranchal West Bengal Karnataka Others Bihar 6% Rajasthan 8% Statewise Wheat Sowing (As on December 15th) Uttaranchal 1% Maharashtra 4% Gujarat 4% West Bengal 1% Karnataka 1% Haryana 10% Punjab 14% Others 2% Uttar Pradesh 34% Madhya Pradesh 15% Among the major wheat producing states, area coverage under wheat cultivation is more in the state of Uttar Pradesh, which is up by 34% over previous year s planting figures followed by Madhya Pradesh, wherein area covered is up by 15%, Punjab (14%) and Haryana (10%). Climatic conditions in these states are favorable for proper plant growth, which would result into bumper harvest of wheat crop.
4 Production Scenario in India India is the third largest producer of wheat in the world after European Union 25 and China. In India, wheat is grown in Rabi season starting from October and continues till end of December. However, weather condition in Haryana and Punjab during the month of December plays a vital role in ascertaining final output. As of now, the weather condition is favorable for proper plant across major producing regions of the country. Area, Production & Yield of Wheat in India Area (mha) & Production (mt) Yield (Kg/ha) Area (M Ha) Production (MT) Yield (kg/ha) Over the decade, area brought under wheat cultivation hovered in the range of million hectares. Whatever may be the area coverage, final production will depends upon the temperature in the months of December and February. As the now, December month temperature is slightly above the normal level. Because of unfavorable climatic factors, yield level has reduced drastically last year resulting into lower production of 69.5 million tons from 72 million tons produced in Yield level has declined to 2584 kg per hectare against 2717 kg per hectares obtained in Demand Situation in India In India, wheat is one of the essential commodities, which is consumed by majority of the people. It is also one of the commodities supplied at concessional price to Below Povery Line populace through Fair Price Shops in order to maintain food security in India. To meet any contingencies if arises from natural calamities like flood, earthquake government procure wheat and maintain it as buffer stocks. Due to lower production this year coupled with increasing population, government did not procured required quantum of wheat.
5 As part of government intervention scheme, the Food Corporation of India will procure wheat on behalf of government. In , FCI had procured 6.8 million tons of wheat, which was lower ever since Wheat Procurement by FCI (Million tons) Government policy: The Government of India has included the wheat under its controlled commodities list. The reason behind this is wheat is one of the most staple foods of millions of people and it is used to maintain food security in India. Some of the Government intervention schemes are: Minimum support prices (MSP) or procurement prices are announced by the government every year at the beginning of every wheat season. These prices are based largely on the cost of cultivation, which is systematically studied based on farm-level information every year by the Commission on Agriculture Cost and Prices (CACP). The issue prices or the price at which the grain is released to the government Public Distribution System (PDS) is fixed and revised only from time to time. The distribution is mainly by state governments through thousands of fair price shops spread throughout the country in the urban and rural areas. The total procurement of wheat ranges from 8 to 14 million tons, accounting for about 11 to 20 per cent of the total production. Thus, the government system handles only a small proportion of the total wheat production and the large proportion is handled by private merchants. Yet the support price operation and the PDS play a significant role in maintaining reasonable and stable food grains prices in
6 the country for both the producers and consumers. However, substantial stocks are sometimes accumulated in the process and these could rise to almost 20 million tons after the harvest and market arrivals, but decline over the rest of the year. Global Scenario World Area, Production & Yield of Wheat Area (mha) & Production (MMT) Area Production Yield Yield (ton/ha) 2.2 Over the decade, even though world acreage under wheat cultivation remained stagnant in the range of 210 to 230 million hectares there was a huge fluctuation in production due to varying climatic condition in different countries. For , world wheat production is projected at million tons down by 5% from 620 million tons produced in Major decline is projected in Australia, wherein projections for wheat production is put at 11 million tons almost half of last year s production of 24.5 million tons. The major reason behind such a drastic fall is El Nino affect, which has brought severe drought condition in Australia.
7 Russia 10% Canada 6% Share of Major Producers Pakistan 5% Australia 2% EU-25 28% USA 11% India 15% China 23% European Union 25 is the major producer of wheat in the world with a contribution of 28% to total global wheat production. Other major producing countries are China (23%), India (15%), USA (11%), Russia (10%), Canada (6%), and Pakistan (5%). Australia s contribution to the world wheat production is slipped to 2% from 5% achieved in last year. World Trade in Wheat Despite USA, Canada and Australia ranks 4 th, 7 th and 6 th place in global wheat production these three counties plays a vital role world trade. USA, Canada and Australia are the top most exporting countries. USA contributes to 22% of the global wheat export followed by Canada (17%) and Australia (17%). One interesting thing to note here is Australia exports nearly 75% of its wheat production, while USA exports 50% and Canada 68% of their wheat production. Egypt, EU 25, Brazil and Japan are the major importing countries. Argentina 9% Russia 6% Share of Major Exporters Others 14% United States 22% EU-25 15% Australia 17% Canada 17%
8 Global Balance Sheet Beginning Stocks Production Consumption Ending Stocks Stock/Use Rato Price Movement in spot & Futures market 1200 Wheat Spot Prices /22/2005 8/19/2005 9/13/ /6/ /31/ /25/ /19/2005 1/11/2006 2/4/2006 2/28/2006 3/24/2006 4/17/2006 5/10/2006 6/2/2006 6/26/2006 7/19/2006 8/11/2006 9/5/2006 9/28/ /24/ /16/ /9/2006 Like other agro commodities, wheat also follows seasonality pattern. Prices will touch their peak during lean season and lowest level in peak arrival period. Wheat futures prices on NCDEX have touched a record high of Rs.1165 per quintal on ember 13 th. After reaching this high, they have started dwindling as the sowing operations started progressing well. From the commencement of the ongoing Rabi season, area covered under wheat cultivation across the country is progressing well. During October 1 st to December 15 th period, area brought under wheat cultivation has increased to lakh hectares, up by 10.4% from lakh hectares planted in the same period last year. Price Outlook Considering the factors like increasing acreage under the wheat cultivation, favorable weather condition, which would support the wheat crop to harvest bumper crop, we expect fall in wheat spot and futures prices in the coming days. Price Target For the month of February we expect prices will fall towards Rs.900 per quintal levels.
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