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Wheat prices surging as India joins export ban-wagon

by moneycompass
May 17, 2022
in Global Market News
India's wheat export ban has cause the surge of global wheat prices, exacerbating the conditions brought on by the Russia-Ukraine conflict.

Source: jcomp via freepik

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KUALA LUMPUR – India’s wheat export ban has cause the surge of global wheat prices, exacerbating the conditions brought on by the Russia-Ukraine conflict.

Reuters reports that wheat prices in the United States and European countries saw a rise of nearly 6% where the Chicago market – used as a worldwide benchmark – reached its daily trading limits recently. Prices in Paris is also approaching all-time high as of date.

Chicago’s futures were up by 4.9% by the close of its overnight trading session during week three of May 2022. It is off an earlier two-month peak.

UN’s food agency revealed that wheat has contributed to the record highs for 2022’s global food prices. Russia’s invasion had halted exports from Ukrainian sea ports with earlier reports stating about 25 million tonnes of grain stuck in Ukraine’s silos as of Mid-May 2022.

India’s wheat export ban was spurred by a heatwave where harvest prospects were cut and local prices hiked. Just several days before, India’s government had maintained that the country was still on track to export 10 million tonnes of wheat globally, to help compensate for Ukraine’s reduced supplies.

Reuters reported that the restriction had stranded almost 1.8 million tonnes of grain at India’s ports where traders were forced to face hefty losses if they were to sell to the weaker domestic market.

However, authorities have stated that they will allow for existing export sales that are covered by letters of credit and also government-to-government deals to ensure food security is met.

Although many traders and analysts had anticipated the wheat export ban at some point as the heatwave worsened, the abrupt news gives added pressure to the market, particularly for one of the world’s most consumed cereals.

“It is a tight market with wheat stocks on a decline, particularly in exporting nations,” said Carlos Mera, head of agri commodities research at Rabobank. “Wheat is a sensitive business and a politicised market. There are food security worries in many nations.”

The rise of food prices had resulted with some other countries banning exports to preserve their own domestic supplies. Indonesia had banned the palm oil exports around end of April this year.

India’s wheat export ban is brought on by severe weather conditions, including droughts in different parts of US and France. This ban is a threat to production potential of other key exporting nations.

There may not be any short-term relief for importers with Ukraine’s ongoing export disruption and Russia’s export capacities being limited by Western sanctions.

A European grain merchant said “We’re in uncharted territory. It is a perfect storm. Top priority for all governments must be fighting social unrest.”

Merchants were estimating how much wheat would still be exported from India based on the previous agreements from private sectors and government-to-government.

Egypt had previously agreed to purchasing 500,000 million tonnes of wheat from India with the purchase to be exempted from export embargo. The deal was struck just a day before India’s wheat export ban policy was announced.

 

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Read more: Worldwide food crisis may be averted with opening of Ukraine ports

Tags: export banIndiawheat
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