India Quickens the Pulse

Spot wheat futures have now switched to the March contract. In figure 1, we can see the gap between the two contracts, after the close of trade for the December contract. The March contract has seen a small lift in the past two sessions. The market is largely on holiday mode, but there are some bullish sentiments coming to the fore:

• Germany is expected to have a reduced planting as a result of continued excess rainfall.
• Argentina will harvest 400kmt less than 2016/17.
• US conditions are not ideal, with the potential for frost events in the coming 7 days impacting the winter wheat crop.
• Some analysts are concerned about lack of snow cover in Ukraine, which is required to ensure protection from frost.

In October and November, we discussed the introduction of import duties into India for wheat and yellow peas (WASDE & Indian barriers, An Indian Summer). In the past day, India has introduced a further duty. This time impacting Chickpeas (or Chana) and lentils (Masoor) with an import duty of 30%.

Chickpeas have become an increasingly important part of many Australian farmers rotations, and have provided strong returns in recent years when cereal prices have languished in the doldrums.

The import duties have been emplaced in order to protect their own local farmers, and in effect reduce imports and strengthen local pricing. The Indian government expects a strong growing season, and wants to effectively halt the flow of foreign pulses flowing into the country, and impacting the prices that growers receive.

In figure 2 & 3, the local price of chickpeas and Lentils in India are displayed, it is quite clear that the market has reacted strongly to the announcement, and throughout December as rumours of the duty persisted.

It is expected that this duty will commence immediately and any chickpeas or lentils en route would be subject to this 30% tariff, which will likely lead to a sting in the tail for exporters. The unpredictable nature of Indian government decisions, makes trade with this nation extremely volatile.

Andrew Whitelaw

Grain Market Analyst
www.mecardo.com.au