LOCAL wheat prices have stabilised for the time being after showing a sudden increase on exports-led purchases. But prices may rise again if wheat exports start to Iran under a wheat-for-fertiliser barter deal.
“Exporters are still in the market but buying has slowed on reports of larger-than expected exports of Russian wheat and on increased supply of subsidised wheat (by provincial food departments) to flour mills,” said a leading Karachi-based wheat broker.
Renewal of talks on barter deal with Iran may, however, accelerate exports-led buying again as during a ministerial level meeting between Pakistan and Iran in mid-July Iran had agreed in principle to buy a million tonnes of Pakistani wheat at the international price as on July 16 ($347 per tonne) in return for fertiliser.
The deal was stalled earlier as Iran was concerned about the quality of Pakistani wheat. “Now a team of Iranian experts is to come and re-examine the quality but that’s just a procedural detail. The barter deal is done,” an official of the Ministry of National Food Security and Research told Dawn from Islamabad.
During the week that ended on July 26 wholesale price of wheat shot up to Rs27,000 per tonne from Rs26,000 a week earlier but by the end of the week retreated to Rs26,500 per tonne. Wheat flour prices were also raised by Rs200 per 100kg but then the hike was halved when flour millers got subsidised wheat from the government.
Pakistan’s wheat exports in June fell to just 5,500 tonnes from around 37,000 tonnes in May because global prices were not that lucrative and because India managed to supply the commodity at rates so cheap that Pakistani exporters could not compete.
“Global prices moved up in July (showing 27 per cent surge between July 1 and July 26) as Jordan entered with a big demand and other importing countries also agreed to buy on higher rates due to concern about drought in the US and overall supply-demand gap projected by the FAO. That provided us a chance to accelerate our exports,” said a leading exporter of wheat and wheat flour.
Market reports suggest that at least 40,000 tonnes of Pakistani wheat was sold in first two weeks of July to Indonesia, Malaysia and East Africa.
Exporters say they shipped additional consignments to these and other countries during third and fourth week of the month but it is difficult to quantify them.
Exporters say whereas up to one million tonnes of wheat exports to Iran is yet to begin, a few exporters have recently sold a small quantity of wheat to Iranian buyers as well.
Commodity exports weigh on local prices in Pakistan as elsewhere. That’s why wheat prices showed an increasing trend in July compared to June.
“But lately, some traders have started overreacting to global market news. When exporters make inquiries and traders quote higher prices citing global trends some exporters are naturally drawn into aggressive buying,” remarked a veteran wheat broker based in Karachi.
“But taking hasty clues from international trends sometimes lead you to nowhere. You’ve to keep the specificities of your own market in mind,” he said commenting on exporters’ buying spree which eventually subsided afterwards.
“Actually Jordan floated a tender for a second batch of 100,000 tonnes of wheat within a month.
That sent global prices up. But as the market learnt that Russia is exporting more (of wheat than thought earlier) and drought-hit Midwest US (comprising nine grains growing states) have got rains wheat futures slid.”
When exporters’ buying is not backed by confirmed orders by their clients and they just start storing a commodity in the hope for increase in foreign orders “such issues like transportation, storage and payment schedules for additional buying crop up and quite often dampen buyers’ sentiments.”
Wheat brokers say it has also become conventional in local grains market that when provincial food departments make sizable releases of subsidised wheat to flour millers, part of the same finds its way into the open market if globally prices are up.
“Normally, flour mills in Punjab and Sindh get more liberal wheat quota in Ramazan. This year is no exception. So, that was another factor that applied brakes on the initial rising trend in domestic prices,” confided a Karachi-based flour miller.
Movement in prices of wheat futures at Pakistan Mercantile Exchange (PMEX) was in line with the international trend. August 2012 contracts plunged to Rs2416 per 100kg on July 26 after shooting up to Rs2497 a week earlier.
PMEX began wheat futures trading in February this year and is still struggling to market this new line of product. “Not many people have shown interest in wheat futures so far but...prices are being quoted regularly and I think they do serve as a local benchmark for the market,” said a PMEX official.
Internationally wheat prices surged 27 per cent in July (up to 26th) from end-June levels on worries about global output as Food and Agriculture Organisation indicated in its latest forecast that global inventories of the commodity was heading towards a big 6.5 per cent decline.
But recent estimates of lesser-than-feared fall in American wheat production cooled off future contract values and on July 26, September 2012 contracts for soft red winter wheat closed around $325 per tonne—down 7.4 per cent from the daily closing price of about $351 per tonne. —Mohiuddin Aazim