India, which has helped push wheat prices into uncharted territory with its heady appetite, could take a short breather from buying but will soon be back scouring increasingly barren world markets for shipments.
Despite being the world's second largest wheat producer, India has floated seven import tenders since February last year, and each time it has contributed to a flare up in global prices. The country paid $178.75 per tonne for wheat in February 2006, its first overseas purchase in six years, but had to shell out a whopping $390 per tonne for its latest order this month.
Analysts said the government had little option except to import, even at high prices. "It is true that prices are very high and there is political opposition, subsidy problems and these are getting magnified but the government has no choice," said G. Srivastava, director, Foretell Business Solutions, a commodity brokerage.
He said the most the government could do was to take a breather and wait for prices to cool before stepping into the market again. The State Trading Corporation has already bought 1.3 million tonnes of wheat this year but it is still short of the four million tonnes the government requires to build stocks ahead of the next harvest in April.
"Prices are bound to rise, but the fear is we may be left with a situation where there is nothing to buy," said one government official. The government purchased five million tonnes of wheat in 2006 after domestic output fell and stocks dwindled.
News reports said the ministers of finance and commerce too had joined the chorus, taking strong exception to importing at sky-high prices, and had advised the government to put a hold on further purchases.
"In this awkward position, the government may be forced to go slow on additional imports," the Hindu Business Line newspaper said in an editorial. "A call can be taken 4-6 weeks from now when the global wheat situation becomes clearer." Wheat futures on the Chicago Board of Trade hit a new record on Monday with the December wheat rising 21 cents to more than $8.64 per bushel.
Iraq, the latest in a long line of buyers, issued a tender on Sunday to buy at least 50,000 tonnes. "Everything has a cycle. Global prices have been going up for too long and there will be a bearish cycle," said Srivastava.
"We expect the next breather will be in a month's time, and one more spike in prices will be there." Wheat prices have been rising in recent months, with crops in Eastern Europe devastated by a drought while heavy rains hit Western Europe's output. Australia's export hopes also remained on a knife-edge after rain failed to arrive over the weekend.
Rabobank, an International farm-trade specialist, on Monday cut its forecast for Australia's wheat crop to between 15 million tonnes and 19 million tonnes, from its previous forecast of 20 million tonnes a week ago.
"Ideally we should come out with a tender quickly, and strike the iron when it is hot, and when there is interest from sellers in Indian purchases," said Avnet Rehabber, a commodity analyst with Commtrendz Research. Analysts said India would need at least another one million tonnes of imports since there was no guarantee prices would rise further.
Local prices, however, have not risen much in recent months because of plentiful purchases from farmers by the private sector. "Another tender for imports is the only way to insure ourselves, if things turn ugly we can protect ourselves," said Rehabber.