Indian wheat futures seen down on higher supplies

Wheat futures in India, the world's second-largest producer, moved into backwardation as prospects of a bumper harvest and higher supplies outweighed short-term hopes of export demand, with prices slipping on Monday. The near month contract on the National Commodity and Derivatives Exchange (NCDEX) fell over 6.5 percent from a record high of 1,705 rupees per 100 kg touched on November 17, as demand for wheat products declined with the end of festival season.
Wheat futures have declined sharply after hitting a record high on November 17, but they are still over 35 percent higher than last year's level. A fall in demand with festivals ending last week, and improvement in supplies after government decided to sell an extra 6.5 million tonnes amid expectations of a bumper wheat harvest, the sixth in a row to exceed demand, pushed Indian wheat futures in backwardation, traders said.
"All running wheat contracts have moved in backwardation and it indicates bearish outlook to continue till March. Wheat prices are likely to see more correction" said Prasoon Mathur, a senior analyst with Religare Commodities. Traders expect wheat shipments from India to rise on a potent combination of dry weather in the United States and drought in the Black Sea region. "However, this will not be enough to support local prices. We expect wheat prices to fall by around 5 percent in the next few weeks," said Mathur.
The South Asian nation has allowed export of wheat from government stocks, which are at 43.15 million tonnes, nearly four times the target level of 11 million tonnes. Currently, stocks in government warehouses are more than local requirements and supplies from the new season crop will start hitting market from April onward as wheat planting in India has already begun and is likely to gain momentum in the next few weeks, traders said.
India grows one wheat crop, which is planted in November-December and harvested in April-May. In Chicago, the key December contract on CBOT was trading up 0.44 percent at $8.51-1/2 per bushel at 1042 GMT. The most-traded contract for December was trading down 0.38 down at 1,593 rupees per 100 kg (around $7.3 per bushel).