India's wheat imports hit 500,000 tonnes as drought cuts supplies

SINGAPORE (Reuters) - Indian flour mills have signed deals to import about 500,000 tonnes of Australian and French wheat this year for shipment between July and September as drought reduces domestic supplies, two trade sources said on Wednesday.

India's 2016/17 wheat imports are expected to surge more than five-fold to 2.75 million tonnes, a Reuters survey showed last month, as a severe drought linked to an El Nino weather event and unseasonal rains push domestic output down to the lowest since 2011.

Some traders are now further raising their outlook for India's wheat imports, with forecasts ranging from 3 million to 5 million tonnes. India may also reduce or remove a duty of 25 percent on wheat imports, traders have said.

The bulk of the deals done in the past few weeks have millers paying between $237 and $243 per tonne, including cost and freight, for Australian prime wheat with 12.5 percent protein content. For French wheat with 11 percent protein, millers paid around $200 to $205 per tonne.

Millers have bought a total 350,000 tonnes of Australian wheat and 150,000 tonnes of French wheat, traders said.

India's wheat output is likely to fall short of the official target of 94 million tonnes as a second year of drought and unseasonal rains hits yields. Traders say India's wheat production is expected to be at least 5 million to 6 million tonnes lower than the target.

Last year, the country produced 86.53 million tonnes of wheat.

Traders said that with the likely shortfall in output the government's procurement for supplies to the public distribution system and buffer stocks had fallen below targets this year.

Traders estimated government's procurement at about 22.8 million tonnes so far against a target of 30 million tonnes.

"Initially the government was aiming to buy 30 million tonnes of wheat from farmers this year, but the trend so far suggests that wheat buying is far behind last year’s procurement of about 28 million tonnes," said a leading New Delhi-based trader who did not wish to be identified.

Traders said that without the huge stocks of wheat built up over the past few years of bumper harvests that the flour millers would be importing even higher volumes of the grain.

Recent government purchases of new-season wheat bumped up the national stocks of the grain to 31.4 million tonnes as of May 1, according to official data, more than four times the target of holding 7.4 million tonnes in buffer stocks.

(Reporting by Naveen Thukral; Additional reporting by Mayank Bhardwaj in NEW DELHI; Editing by Tom Hogue)