Government may cut floor price for wheat exports to boost sales: report

India may soon cut the floor price for exports of wheat from government warehouses by 13 per cent, government sources said on Tuesday, which could boost shipments and put downward pressure on benchmark prices in Chicago.

The move could come after state-run trading firms in the world's second-biggest wheat producer after China earlier this month received bids lower than the minimum rate for overseas sales, the sources said.

Government warehouses are awash with wheat, with stocks at 36.1 million tonnes as of October 1, substantially higher than a target of 11 million tonnes. The government also has an extra 3 million tonnes of wheat as strategic reserves.

The Cabinet in August allowed three government-backed trading companies to export 2 million tonnes of wheat from warehouses at a floor price of $300 per tonne plus taxes.

But in the first round of export tenders, State Trading Corp, MMTC Ltd and unlisted firm PEC Ltd received bids lower than $300 a tonne.

That poor response has prompted the government to consider cutting the price.

"We could soon lower the price as we do not want to be seen as too rigid, but at the same time let me tell you that there is a good deal of demand for Indian wheat," a government official involved in the decision-making process said.

The government could lower the price to $260 a tonne, said another government source who is also part of the process.

Traders do not find the price of $300 a tonne viable.

"It is the need of the hour to reduce the price of $300 a tonne, because it is neither workable nor competitive," said Tejinder Narang, an adviser at New Delhi-based trading company Emmsons International.

India primarily exports wheat with 11 per cent protein content. For buyers in the Middle East, Indian wheat costs $325 a tonne C&F, while the same variety from the Black Sea region is available at $275-$280 a tonne C&F, traders said.

The Cabinet earlier in the year had approved exports of nearly 4.5 million tonnes.

Its export volumes are paltry in a global trade of nearly 140 million tonnes, but, as global supplies tighten, they will help meet the needs of the biggest buyers of lower-quality wheat in the Middle East and Africa.

India buys rice and wheat from local farmers to supply subsidised food to the poor. The government has recently expanded its food welfare programme to feed 70 per cent of the 1.2 billion population.

Copyright @ Thomson Reuters 2013