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India misses the bus with wheat export decision

REUTERS, New Delhi/Singapore
India's plan to sell wheat after a four-year ban will find few takers as resumption of Russian exports is likely to flood the market with cheaper grain, already a nightmare for top suppliers the United States and Australia.New Delhi's move will only add pressure to benchmark U.S. wheat futures , which have slid more than 14 percent since the start of June, dragged down by prospects of Black Sea supplies that are larger than expected.
India, the world's second-largest wheat producer, on Monday allowed 1 million tonnes of common rice exports for the first time since 2008 and lifted a four-year old ban on wheat sales, as it tries to balance the management of burdensome grain stocks against its fight on stubbornly high inflation.
The timing of the South Asian nation's decision is unfortunate, coming just as Russia — typically the world's third largest exporter — this month started selling cargoes following a year of drought.
Analysts said that would make it almost impossible for Indian wheat to find a home, particularly as the Indian wheat will cost around $300 per tonne against the roughly $244 cost of its Black Sea competitor.
"There is going be too much of grain coming in from the Black sea so cheaply," said Adam Davis, a senior commodity analyst at Melbourne-based fund Merricks Capital.
"They are going to struggle to find buyers at these values."
Exporters from Russia and Ukraine have secured several tenders since the past week, selling more than 400,000 tonnes of wheat to Jordan, Egypt and Tunisia.
On Wednesday, traders reported the sale of 75,000 tonnes of feed wheat to the Philippines, which is expected to be the first Black Sea sale into Asia since last year’s drought cut supplies.
PRICES HOLD THE KEY
Russia is offering competitive prices. Egypt, the world's biggest wheat importer, bought 180,000
tonnes of Russian wheat last week at $243.50-$244.50 a tonne, free on board, which analysts said was around $40 lower than offers from Europe and the United States.
This compares with Indian wheat, which will not cost less than $295 to $300 a tonne.
"India has missed the bus as we are not competitive now," said Amit Takkar, president of Emmsons International, a commodities trading company based in New Delhi.
"At current rates, wheat exports will not be viable without a subsidy and a subsidy is unlikely, so it
is out of the question."
India banned overseas shipments in 2007 to bolster domestic supplies after bad weather curbed output, forcing the country to import wheat at sky high prices. But reserves have surged since, with bumper production for five straight years.
Wheat production is forecast at a record 84.27 million tonnes in 2011, after an all-time high output of80.80 million tonnes in the previo us year.
Brimming silos have forced the government to store some wheat under tarpaulin, exposing the grain to rot and decay in a
country where an estimated 450 million people live in poverty.
At the beginning of this month, India's wheat stocks at government warehouses were 37.1 million tonnes, well over its target of 17.1 million. Rice inventory was 26.8 million tonnes against a target of 9.8 million tonnes.
Neighbouring Pakistan moved nimbly earlier this year to take advantage of a global supply squeeze resulting from Russia's absence from the market.
Asia's third-largest wheat producer, Pakistan resumed wheat exports in January for the first time in three years and sold nearly 1.8 million tonnes of wheat by June, before being knocked out of the wheat market by fierce competition from Russia.
"The timing of Pakistan's move was beneficial for them," said Darren Cooper, a senior economist at the International Grains Council in London.
"At the moment because of the relaxation of export restrictions in Black Sea, it is not the right time for India to be competitive in the market. "
Despite its overflowing grain bins, India kept curbs on wheat exports as Prime Minister Manmohan Singh's government struggled to rein in high food inflation, a major headache for the fractious ruling coalition led by his Congress party.
Food inflation peaked at around 20 percent at the end of 2009 and stayed mostly in the high double digits before starting to easingfrom March thisyear.