Wheat prices may continue to slide

[Lahore_Real_Estate]

By Ahmad Fraz Khan
LAHORE: With the Punjab Food Department preparing to wind up procurement campaign in a week’s time, wheat price has started crashing throughout the province and may continue to slide.

On Tuesday, it dropped by Rs20 per 40kg – from Rs885 to Rs865 -- and the farmers fear that every passing day will press it further down.

According to wheat analysts, the market still has a tradable surplus of around 800,000 ton to one million ton. The millers are not ready to purchase it at current lower price, because they know it will go further down. The investors, who had money or loans, have already purchased their share and are almost out of the market. Thus, no one is there to control the market glut and stabilise the price.

The food department has so far procured 3.6 million ton wheat, and hit its financial limits. It has invested Rs84 billion on the purchase, and plans to terminate the drive just under four million ton. Its daily arrival is still around 40,000 ton, and it will hit the target by the first week of June. Everyone in the market now knows that it has already invested whatever loans it got from the banks and will have to borrow more money for procurement, which is hard to come by.

According to Muhammad Mukhtar, a trader from Farooqabad, the department will maximum purchase another 200,000 ton to 300,000 ton if it gets additional money from banks. It will still leave around 500,000 ton to 700,000 ton in the market, causing a steep crash. Both these realities – market glut and department pulling out – are pressing the price down, and will continue doing so, he says.

A few middlemen with a limited holding capacity are still keeping their stocks with the hope that the government will complete the procurement target of five million ton. “Once the department is out and they lose the hope, they will throw their stocks in the market, further accentuating the problems,” Mukhtar says.

This glut of half a million ton will hurt the farmers badly, says Jamal Hotiyana – a grower from the central Punjab. In fact, Afghanistan has a good crop this year and the Afghans did not show interest in shopping. That quantity, which normally finds it way to Afghanistan, has created a local market excess.

“The situation may take another turn after two months when rice traders, who had huge bank limits and invested in wheat, will start throwing wheat in the market to clear their godowns,” says Abdul Basit, a rice trader from the city. That means the wheat price is not expected to recover for the next few months.