Cereal inflation seen cooling on robust govt stocks

Wheat procurement up 43% on year.

A likely improvement in the government’s grain stocks will help cool retail cereal inflation, which has remained in double digits for several months in a row.

Cereals and the products category, which includes rice, rice and other grains, has 9.67% weightage in the Consumer Price Index.

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A food ministry official said surplus grain stocks with the Food Corporation of India (FCI) will allow the corporation to commence open market sales, if prices do not soften by the next few months.

Wheat and rice prices rose by 15.46% and 11.37% in April on year against an increase of 25.05% and 10.51%, respectively, in January 2023.

According to department of consumer affairs data, the modal retail wheat prices declined by 9% to Rs 25.5/kg on Saturday against the prices prevailing in January 2023 while rice prices have remained unchanged at Rs 35/kg in the past three months.

The decline in wheat inflation since January was due to an improvement in supplies as fresh harvest arrived in the market while the FCI and state agencies stepped up procurement from farmers at the minimum support price (MSP).

Additionally, the FCI had sold through weekly option 3.37 million tonne (MT) of wheat under the open market sale scheme to private bulk buyers such as flour millers and food companies during February 1 – March 15.

“We expect further drop in wheat inflation by June as a major chunk of harvest would have arrived in the market by then, thus pulling down prices,” an official told FE.

Wheat procurement by the FCI and state government agencies for the current season (April-June) as on Saturday crossed 25.7 MT, up by 43% on year.

Sources said the wheat procurement by agencies is likely to touch 27 MT this season (April-June) against the total lifting of 18.79 MT in the last season.

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While the procurement operations are mostly over in Punjab (12 MT), Haryana (6.3 MT) and Madhya Pradesh (6.8 MT), the lifting is expected to continue for another three weeks in Rajasthan (0.3 MT) and Uttar Pradesh (0.2 MT). Madhya Pradesh has extended the procurement on MSP till May 20.

“Mandi prices of wheat have been ruling around the MSP of Rs 2,125/quintal at present and farmers are holding on to some stocks in anticipation of higher prices in future,” said Mukhesh Khatod, a wheat trader from the Rajasthan’s Chittorgarh mandi.

At present, the FCI has a wheat stock of 31.41 MT while the government needs 18.4 MT annually for the implementation of the National Food Security Act (NFSA). “We will have sufficient (stock) to carry out open market sale of grain from July onward, depending on the prevailing prices,” an official said.

The government procurement of rice has been close to 50 MT so far in the 2022-23 season (October-September).

The FCI’s rice stock is currently at 27.1 MT, which excludes 15.6 MT of rice yet to be receivable from millers. The corporation needs 36 MT of rice for allocation under the NFSA.

Rice production in the 2022-23 crop year (July-June) was estimated at a record 130.8 MT, which is 1.36 MT higher than the previous crop year.

The buffer norm for July 1 is 27.58 MT (wheat) and 13.54 MT (rice).