LAHORE, May 1: Wheat price in the Punjab has slightly risen during the last few days as a result of the State Bank of Pakistan’s allowing liberal commodity finance, and wheat harvesting failing to gain any momentum.

There has been Rs5 to Rs10 raise in wheat prices in the last few days in most cities of the province. In the beginning of the last week, an average price for 40kg wheat remained between Rs390 and Rs395. It has now gone up to Rs405 to Rs415.

The millers claim that Rs415 is factory price, which includes Rs10 to Rs15 transportation charges.

Wheat market watchers identify two factors for the raise; harvesting has not gained momentum so far and the central bank has at least created a speculative pressure on wheat price with its liberal finance policy.

“The State Bank allowed commercial banks to offer loans to traders and millers for the purchase of wheat on the interest rate of their own choice,” said a trader from Lahore.

The banks can now decide interest rate keeping in view the risk profile of each borrower.

He said the decision hit the market on two counts. First it had generated a speculative pressure on wheat price with every one awaiting a big monetary influx in the market. “This ripple has taken the price a bit up.” Second it had created a euphoria in the market that the government was still committed to casting the private sector in a big role, he said.

During the last year, he said, the federal government was importing a huge quantity of wheat. The SBP was pressing for early recovery of commodity finance and the provincial government was raiding private stocks. These factors literally scared the private sector.

This decision, he said, would restore confidence of investors and help stabilize price.

A miller from Lahore is of the view that the government knew that it would end up holding the baby if it did not come up with a liberal finance policy this year. After all, it promised to purchase wheat till the last grain. With the crop size expected to be a massive 22 million tons, it could end up purchasing the entire marketable wheat. The situation could have turned to be nasty for it.

The only option the government had was to delay its policy a bit and let its official agencies meet the target. But, it could have created glut and a price crash, he claimed. Mr Khaliq Arshad of the Pakistan Flour Mills Association is of the view that neither the private sector has yet shown its strength nor has harvesting picked up. So, it is too early to predict wheat price behaviour. But, it will certainly not come down to dip below the support price.

The private sector is least likely to opt out and will certainly keep price floating just above the support price. The crop size, which is a record as far as all predictions are concerned, would not let the price shoot through the roof as had happened last year. The price would most probably hang around the support figure, he said.

He iterated that it would be too early to base all calculations on 22 million tons. There were reports of yield sliding in some parts of the province after heavy rains last month. It might not affect the final figure in a big way, but 22 million tons might not be achieved, he feared.

An official of the Punjab Food Department thinks that in spite of combined wheat purchases by the food departments and Passco as well as by the private sector, the flour millers will still get enough wheat to slash prices.

High wheat prices in the last season because of smaller-than-expected crop and hoarding pushed retail prices up, which triggered a chain reaction and spiralled prices of eatables. During the first nine months of the current fiscal, consumer inflation had increased at an average rate of 9.06 per cent against the whole fiscal year target of five per cent. The State Bank had swung into action to arrest this runaway inflation by raising interest rates.

The department, he said, was pinning all its hope on good crop size to bring prices down and carry out a few more experiments for withdrawing from some areas of wheat trade, he claimed.

The banks offering wheat loans might fix margin requirement as low as 10 per cent of the value of the wheat stock, he said. But, they would not be able to provide financial facilities (funded or unfunded) to enable the borrowers meet the margin requirements, he added.

It was necessary to keep cash margin condition in the play, otherwise, banks could have ended up financing that as well and defeat the purpose, he claimed.