Canada Markets

The attached chart says it all. I've brought up India's potential during the past several months but how interesting to see a graphical representation!

From a low of 23,000 metric tonnes in 2008, to this year's current USDA estimate of 6.5 million metric tonnes, India has achieved a 28,160% increase in wheat exports! India is the world's second largest wheat producer, with a production of 94 mmt in 2012, and with a population of 1.2 billion, is also one of the largest consumers, utilizing approximately 76 mmt annually.

As of January 1, India had 34.4 mmt of wheat stocks which were owned by the government. This is more than three times the 11 mmt that the government is required to hold and is clogging storage facilities in advance of the upcoming new-crop harvest in March.

Despite the vast volumes to work with, India faces challenges as an exporter. Many surrounding Asian countries refuse to purchase Indian wheat for human consumption uses due to impurities in the grain. Other countries are making purchases only as a result of tight supplies in the Black Sea countries. Despite 4.5 mmt that has been approved by the government for export since last July, only 1.76 mmt have been physically shipped as of a few days ago.

As a result, a recent Indian delegation has travelled to Australia to increase their knowledge base surrounding technologies involved with the cleaning, storage and throughput of grain to improve India's standing as an exporter. Lack of current expertise and the country's bureaucracies are currently suggested to play a role in contributing to the challenges they face.

Another ongoing breakdown in Indian trade has centered on an arrangement with Iran in which India paid rupees for 45% of the oil it imported from Iran, with the intentions of shipping wheat to Iran in exchange for payment in rupees. While there is an agreement in principle, the two sides cannot come together over quality issues for the wheat, with the issue being Karnal bundt.

Indian wheat trades at a discount to competing product, partially due to quality and also due to the urgent need to move it due to storage constraints. With 38 mmt in storage, the Indian government expects to buy an additional 40 mmt from the nearby harvest, while storage exists for 71 mmt. Of this storage, 18 mmt is suggested to be cover and plinth storage (CAP) which consists of bagged product piled and covered with plastic. This method of storage is suggested to maintain the grain's quality for little more than a few weeks, while risking loss to wind, insects, rodents and spoilage due to improper management.

In addition to quality and storage issues, the country also faces congestion at their ports as well as a lack of rail capacity to move product to port. Despite the list of issues faced, some still would suggest that this year's potential is closer to 9.5-10 mmt. While December's sales were made at the $340-$345/mt, new crop is being offered in the $305 to $308 range, 10.5% or approximately $1/bushel lower.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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