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Indian wheat prices drop after Modi releases grain for flour millers

Workers sift wheat before filling in sacks at a market yard on the outskirts of Ahmedabad

By Rajendra Jadhav and Mayank Bhardwaj

MUMBAI/NEW DELHI (Reuters) - Wheat prices in India, the world's biggest consumer of the grain after China, have dropped nearly 13% from record highs since the government offer last week of 3 million tonnes to bulk consumers such as flour millers.

Prime Minister Narendra Modi's government on Wednesday allowed flour millers to buy up to 3 million tonnes of wheat from state reserves.

On Monday, wheat prices in New Delhi dropped to 28,290 rupees ($347.11) a tonne, down 13% from their record high hit last week because stocks are low.

But domestic prices are still higher than the state-set support or guaranteed price of 21,250 rupees.

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The price spike reflects a big drop last year in state purchases of wheat.

Every year the government-backed Food Corporation of India (FCI) buys millions of tonnes of wheat at a fixed support price to build the reserves needed to run the world's biggest food welfare programme.

FCI also buys wheat from local farmers to build strategic reserves to deal with emergencies such as droughts.

Last year, FCI's purchases of wheat fell by 53% to 18.8 million tonnes, as open market prices stayed above the rate at which the government buys the staple from domestic farmers.

"We do not want FCI's procurement to drop this year and that is why we have released 3 million tonnes of wheat," said a government source who did not wish to be identified.

"If prices drop, FCI will be able to buy reasonably sufficient quantities of wheat from farmers," said the official with direct knowledge of the matter.

A jump in India's wheat exports following Russia's invasion of Ukraine pushed up local wheat prices, prompting India to order a ban on exports in May, but that failed to halt domestic price rises.

"The release of government stocks will help in easing shortages, but the stocks should have been released in December," said a Mumbai-based dealer with a global trade house.

"The government delayed the release of wheat and allowed prices to rise above the psychological level of 30,000 rupees."

($1 = 81.50 rupees)

(Reporting by Rajendra Jadhav and Mayank Bhardwaj. Editing by Jane Merriman)