Highlights

On December 8, 2016, the Ministry of Finance removed the import duty on wheat indefinitely from the earlier provision of 10 percent import duty effective till March 1, 2017. Consequently, MY 2016/17 wheat imports are raised higher to 3.7 million metric tons (MMT). MY 2016/17 ending stocks are lowered to 8 MMT.

Wheat

Market Begin

India

2014/2015

2015/2016

2016/2017

Apr 2014

Apr 2015

Apr 2016

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Harvested

30473

30473

31470

31470

30220

30220

Beginning Stocks

17830

17830

17220

17220

14540

14540

Production

95850

95850

86530

86530

90000

87000

MY Imports

51

51

471

471

3000

3700

TY Imports

273

273

300

300

3000

3500

TY Imp. from US

0

0

0

0

0

0

Total Supply

113731

113731

104221

104221

107540

105240

MY Exports

3409

3409

1130

1130

400

400

TY Exports

1834

1834

873

873

400

400

Feed and Residual

4500

4500

4200

4200

4500

4500

FSI Consumption

88602

88602

84351

84351

91640

92340

Total Consumption

93102

93102

88551

88551

96140

96840

Ending Stocks

17220

17220

14540

14540

11000

8000

Total Distribution

113731

113731

104221

104221

107540

105240

Import Duty on Wheat Removed

On December 8, 2016, the Ministry of Finance issued a notification removing the import duty on wheat for an indefinite period. Earlier in September, the Ministry of Finance lowered the basic custom duty on imports of wheat from 25 percent to 10 percent (ad valorem on CIF value) till March 1, 2017. Market sources report that the GOI decision to remove the import duty was due to concern about the rising domestic prices and declining government-held wheat stocks in the recent months.

Domestic prices have surged over the last two months to record levels due to tight domestic markets. Due to the concerns on declining government-held wheat stocks, the government reduced wheat sales under open market sale scheme (OMSS) in recent months contributing to the strong escalation in domestic prices. Consequently, the government removed the import duty on wheat to allow private mills to augment their wheat consumption requirement through imports.

Firm domestic prices resulted in stronger offtake of government held-wheat in the first seven months of the marketing year (18.6 MMT vs 15.4 MMT last year), especially by the private trade under OMSS, resulting in stocks on November 1, 2016, declining to 18.8 MMT, more than 11 MMT lower than last year. Consequently, the government reduced the wheat offtake from November onwards on concerns about further draw down of stocks to levels below the government desired stock levels. Consequently, the domestic prices have escalated to record levels in most markets as historically the government has been the dominant supplier in the open market during the second half of the marketing season.

The strong domestic prices strongly suggest that the Ministry of Agriculture (MoA) estimate of the MY 2016/17 wheat production of 93.5 million metric tons (MMT) is highly optimistic, while private trade sources continue to estimate the crop in the range of 85 to 87 MMT. At this stage, Post continues to estimate MY 2016/17 wheat production at 87 MMT.

MY 2016/17 Imports Raised

Post's MY 2016/17 wheat imports are revised higher to 3.5 MMT on improved import prospects due to the removal of the import duty. Trade sources report that about 3.2 MMT of wheat has already been imported or contracted for imports through end February, 2017 and an additional 0.5 MMT is likely to be imported in March 2017. Assuming no significant changes in the import duty structure and current price parity between domestic and international wheat prices, MY 2016/17 imports are likely to reach 3.7 MMT. However, import prospects are likely to be affected if the government decides to re-impose the import duty based on the production prospects of the upcoming MY 2017/18 wheat crop.

Ending Stocks Lowered

Post estimates MY 2016/17 wheat ending stocks lower at 8 MMT based on relatively higher offtake of wheat during the first half of the marketing year. The official wheat stocks on December 1, 2016, are estimated at 16.5 MMT, about 10.4 MMT lower than last year level. Assuming the normal offtake of wheat under the public distribution system (PDS) and reduced offtake of OMSS during the last four months, the MY 2016/17 ending stocks are expected to decline to 8 MMT, just about the government's desired stocks of 7.5 MMT.

Consumption Revised Higher

MY 2016/17 consumption estimate is revised higher to 92.4 MMT reflect the change in the import and stock estimates.