LURED by falling global wheat prices, Pakistani flour millers booked two cargoes of about 100,000 tonnets of Russian and Ukrainian wheat in mid-August. They believe this will help stabilise the country’s volatile market.

The millers paid $269.50 a tonne, including cost and freight, which is $30 less than what it was in May. But the lower price was not the only reason. The country’s wheat crop is expected to be smaller than the national target of 25m tonnes because of damage caused by unscheduled rains in the first half of this calendar year.

This may result in shortage of the staple commodity, and the millers would make a big profit by raising the prices of wheat purchased at lower prices. Over the last one year, wheat prices have risen frequently for reasons such as rain damage to standing crops, increase in wheat support price, costly import of wheat, rise in diesel and petrol rates, and hike in electricity charges.

The Ukrainian wheat that Pakistani millers have bought is rain-damaged and of lower quality, which is one cause of its lower price

The Ukrainian wheat that the millers have bought, one may note, is rain-damaged and of lower quality, which is one cause of its lower price. The share of the affected wheat, which is normally sold as animal feed, is 35pc of the Ukrainian crop this year, compared with 25-30pc in the previous year. Ukraine will produce more wheat for animal feed and less higher grade bread-making grain this year, as rain damage has shifted its quality balance.

One cargo is scheduled to be shipped in October, while the other consignment is to arrive in Pakistan between October 15 and November 15. The release of the imported wheat into the market may lower prices. However, similar imports from July to December 2013 had failed to stabilise flour prices, as some millers are often too greedy and raise their prices on flimsy grounds. Pakistan imported wheat worth $107.2m during July-June 2013-2014, according to the Pakistan Bureau of Statistic.

The shipment expected to arrive in October is to be mainly marketed in Karachi. Wheat imports, which began in July 2013 to control prices, were suspended this January onwards due to rising prices in world markets and the arrival of the new crop in March. However, for the last two months, wheat prices had been declining, according to traders.

In fact, it is the prospect of a bumper worldwide grain crop and a report that new European trade sanctions against Russia will not include agriculture that are driving down wheat prices. Wheat rates recently quoted at the Chicago Board of Trade are down almost 30pc since early May.

The Food and Agricultural Organisation, the United Nations’ agriculture body, has said global food grain prices slumped to a six-month low in July. Production prospects, especially of food grains, have meanwhile improved, especially in major producing regions, including the US, the European Union and India, which is likely to keep global prices in check during much of this year.

Pakistan, it is stated, is importing a higher quantity of wheat to balance last year’s export of the commodity. Pakistan’s wheat price in global markets has now risen to $300 per metric tonne, and market players, as such, are reluctant to make purchases because the price is too high, even though the quality of Pakistani wheat is much better than that of Ukraine, India and Sri Lanka.

Published in Dawn, Economic & Business, August 25th, 2014