India’s embargo on wheat exports has given a new impetus to the world market, with traditional export powerhouses Canada, Europe and Australia already facing tight supply due to output problems and rupture of supply lines in the war-torn Black Sea region.
Benchmark wheat futures in Chicago jumped their 6% limit on Monday as markets reacted to the ban announced over the weekend, raising concerns among businesses and importers who had been banking on millions of tonnes of Indian wheat for shipments over the next few months. .
Below is a brief explanation of what is at stake for the global grain market.
Why did India ban exports?
India initially targeted 12 million tonnes of wheat exports in 2022/23, which is significantly higher than last year’s record 7.2 million tonnes.
After harvesting five record crops in a row, New Delhi expected the sixth crop to be a further 111.32 million tonnes.
But a heat-wave at a critical crop development stage reduces yields, forcing the government to reduce its production estimate to 105 million tonnes.
Lower output and strong export demand push up local prices, often above the government-fixed purchase price.
It persuaded farmers to sell wheat privately instead of to the state, whose purchases for running welfare projects have declined due to strict supply.
How important is India for the world market?
India is the world’s second largest wheat producer after China, but seldom exports grain due to high government subsidized domestic prices and widespread domestic food demand.
However, over the past decade improved seed selection and farm management have led the country to a new record crop this year, opening the door to export growth just as the global crop market really needs additional supplies.
Indian wheat exporters are eyeing sales of up to 12 million tonnes in the 2022/23 season, which would place India as the eight largest exporter, not far behind Canada with an estimated 15.5 million tonnes.
Top destinations for Indian exports include Bangladesh, Indonesia, Nepal and Turkey, and top global buyer Egypt recently agreed to make the first purchase of Indian wheat as Cairo sought to replace lost shipments from the Black Sea.
Who are the other major wheat exporters?
According to the US Department of Agriculture, Russia, Europe, the United States and Canada are traditionally the top global wheat exporters and accounted for about 60% of world wheat exports from 2015 to 2020.
However, everyone has experienced significant wheat crop failures in recent seasons, with their combined export share falling to just 50.7% in the 2021-22 season, mainly due to droughts in North America and Europe.
This year’s export tonnage was expected to recover until Russia invaded Ukraine – an associate major wheat producer and supplier – severing shipments from the region and scrambling by major buyers to find replacement supplies.
Australia is expected to be the third largest exporter of wheat this year, but quality has deteriorated in some areas just before the harvest and has already sealed the deal on most export volumes.
Who are the top importers?
Egypt, Indonesia, China, Turkey and Algeria are the top five wheat importers in the last three seasons. Other major importers are Bangladesh, Morocco, Nigeria and Brazil.
As Russia’s aggression in Ukraine threatens to cut off wheat supplies from the Black Sea, major buyers in Africa and the Middle East are fighting for replacements, as most alternative exporters do not begin harvesting until June.
The exception this year was India, which wrapped up its main wheat crop this month and so there was a rare abundance of fresh wheat.
What will happen to wheat in India now?
The sudden ban on exports means that the lion’s share of the new crop will now be in India.
Trading firms that have already secured credit letters for grain exports will be allowed to proceed with the sale.
The rest of the crop that was expected to be exported now has to be sold or stored internally.
Local wheat markets have already begun to respond to the ban, with prices falling by as much as 2% over the weekend in various spot markets.
Read more: Adani Ambuja Cements offers open acquisition of 26% stake in ACC
Also read: Gold prices fall by Rs 46 amid weak global trend