New Delhi: A warmer temperature in the month of February may adversely affect wheat production in India’s key wheat-producing states such as Punjab this year, said a report, adding that as a result the wheat prices would remain elevated, leading to high retail inflation that may make it difficult for the Reserve Bank to pause policy rate hikes.
An analysis carried out by the economists and India Ratings and Research (a Fitch Group rating agency) showed prevailing temperature so far in February 2023 was again higher than normal. The agency said it indicates that wheat production, like 2022, may again face ‘terminal heat stress’. As a result, the agency said in a report, the wheat output fell to 107.7 million tones as against the second advanced estimate of 112.2 million tones.
Warmer February in Punjab
According to the analysis, on average, the maximum temperature in Punjab, a key wheat-growing area, has been four to five degrees Celsius higher than the normal temperature, which usually remains range bound at 17-23 degrees in the month of February. The data showed that on 19 out of 26 days between February 1 and February 26, the maximum daily temperature in Ludhiana district of Punjab was either 25 degrees Celsius or higher, sometimes closing to 30 degrees as against the normal temperature of 17-23 degrees during this period.
This terminal heat stress is expected to adversely affect the wheat production in the state which is known as food bowl of the country as it accounts for nearly 30 percent share in the Centre’s wheat procurement.
Dwindling wheat stock
India Ratings said the average monthly rate at which wheat stock declined during August 2021 and February 2022 was 4.6 million tonnes. But the rate of decline came down to about 2.0 million tonnes between August 2022 and February 2023, as the government reduced the allocation of wheat under the Pradhan Mantri Garib Kalyan Ann Yojana.
The rating agency said that it expects the wheat stock in March 2023 to drop to 13.4 million tonnes before going up to 51.3 million tonnes in July 2023 if the average procurement-to-production ratio of FY18-FY22 remains valid for this season also. However, even then the wheat stock would be less by about nine million tonnes as against the wheat stock in July 2021.
Elevated heat sends signal to market
According to economists, it appears that a warmer February and the government’s limited ability to intervene in the market have already been factored in by the market participants. Though, in order to cool down the wheat prices, the government lately released 1.8 million tonnes of wheat under the Open Market Sale scheme in three e-auctions.
As a result, spot prices of wheat in the NCDEX declined to Rs 2,405 per quintal on 24 February 2023 from a high of Rs 2,800 per quintal on 1 February 2023. However, the rating agency said that as long as the arithmetic of wheat production, wheat procurement and domestic demand are not in alignment and the market continued to believe that the ability of the government to intervene in the market is limited due to the lower wheat stock, wheat prices are expected to remain elevated.
