Huge supply and expected bumper production of wheat are pressurising prices to move further south. Wheat prices dipped around 16 per cent since the middle of January after a bumper production estimated by the government for present season, coupled by weak offtake, hurt the crop’s prices.

Keeping in mind the comfortable supply situation, the fundamentals seem in favour of the bears from a short-term (one-two months) point of view. In India, the minimum support price (MSP) of wheat for financial year 2011 is Rs 1,100 per quintal. It appears that market prices can go below the MSP in India during late March to the whole of April.

From an investment point of view, Ajitesh Mullick, in-charge of agri research at Religare Commodities, says that one can start investing in wheat from the middle of April. It is expected that during the month of April, the market would witness its bottom and downside risk would be comparatively lower. Investors can bet on what for the next six to 10 months.

According to the farm ministry, on February 19, 2010, the government raised India’s present season’s wheat crop estimates to a record 82 million tonnes, which was updated a second time within a week from 80.2 million tonnes estimated earlier after considering favourable weather conditions. A good chill in January and middle of February was good for wheat and the production of the crop in Punjab and Haryana is looking quite robust this season. In the previous season, production was estimated around 80.7 million tonnes and 78.5 million tonnes was the estimate for the 2008 season and 75.8 million tonnes for the 2007 season.

However Vibhu Ratandhara, assistant vice-president at Bonanza Commodity Brokers, said, “Traders also estimate that it should be somewhere between 80-81 million tonnes, slightly lower than the government’s predictions. Local traders still argue that crop faces some weather risks and it was too early to be confident about its bumper size.”

“If these estimates are true, India’s wheat production for the past four seasons has clocked between 78-82 million tonnes, against less than 70 million tonnes for the season 2005-06 and 2004-05” Ratandhara added.

The government last statement on February 19, 2010, says, “India’s wheat stock would rise to 40 million tonnes by June – 10 times the government’s target of 4 million tonnes wheat stocks as on April 1.

In July 2009, the Indian government lifted the ban on wheat exports but reimposed the restrictions within 10 days on concern food prices may rise if seasonal monsoon rains fail. However in February 2010, India allowed 50,000 tonnes of wheat exports to Nepal for the first time after July 2009, when India allowed exports of 650,000 tonnes of wheat products.

According to the United States department of agriculture, forecast for the world’s wheat closing stocks is seen at around 195.86 million tonnes in 2009-10, which represent a stocks-to-use ratio of over 30 per cent, the highest in eight years. However in its latest statement IGC (International Grain Council) said global wheat production may decline by 2.37 per cent to 659 million tonnes in 2010, while India’s output is seen as stable at around last year’s level. Output may dip in the US, China and Turkey. The Food and Agricultural Organization has informed that global wheat output is likely to decline sharply this year because of lower acreage under wheat as farmers shift to other crops due to poor prices driven by high carryover stocks.

On the international front, world wheat production is expected to decline marginally below the previous year’s figure but the total supply is expected to remain higher by 3 per cent. Ending stocks are expected to increase by about 19 per cent. In India, ending stocks are nearly 33 per cent above the previous year’s figures.

“Since farmers have seen the rates of wheat around Rs 1,450 per quintal, any lower price would derail their plan of selling produce in local markets. Also, since price is not expected to fall below Rs 1,100 per quintal, any revival in demand from millers could result in a pullback in price, which could then be used as an opportunity for farmers to dispose off their produce,” said Mehul Agarwal, commodity analyst at Sharekhan.

At NCDEX, in March wheat has a good support of around Rs 1,210. Sustenance is seen towards Rs 1,195-90/1,160 in the coming days, while resistance seen at Rs 1,240 and Rs 1,260 for the medium term. On Friday, Wheat New was trading at Rs 1,225.85 per quintal.