Trade sources told Reuters that Asian wheat importers rushed to find new sources of supply on Monday after India banned grain exports over the weekend to cover up domestic price hikes.
Importers, especially Asians, rely on wheat from India, the world’s second-largest producer, after exports from the Black Sea region declined after Russia’s invasion of Ukraine on February 24.
Russia and Ukraine are jointly responsible for about 30% of global wheat exports. Ukraine’s exports have been severely hampered by the war, which has forced it to close its ports, while Russia’s exports have been hit by Western sanctions.
“Asian importers are likely to be in deep trouble. India was an alternative to Ukraine / Russia especially for wheat. (They) are already looking for alternatives, ”said a Europe-based wheat trader at the World Trade Organization.
He said that despite restrictions on Russian banks and payment problems associated with improved shipping insurance premiums, Asian importers wanted to buy more Russian wheat.
Benchmark wheat futures in Chicago jumped their 6% limit on Monday as markets reacted to the surprise ban, which New Delhi said came just days after setting a record wheat shipment target of 10 million tonnes this year.
Its policy reversal now means only exports supported by Letter of Credit (LC) or Payment Guarantee which can be issued before 13th May.
That’s about 400,000 tons, industry sources told Reuters, adding that 1.8 million tons are now stuck in the country’s ports.
Traders who hold that wheat will face heavy losses as they will have to cancel their export contracts and resell in a weak domestic market.
“It simply came to our notice then. Traders (who do not have an LC) had to announce the cancellation of the contract. I guess there will be no more (India) shipments from mid-June, “said a second Europe-based wheat trader.
India’s export embargo, triggered by a heatwave that has reduced crop prospects and pushed domestic prices to record highs, also puts output exports to traditional export powerhouses in Canada, Europe and Australia.
Traders say the ban could push global prices to new highs, especially among poorer consumers in Asia and Africa.
Bangladesh, Indonesia, Nepal and Turkey are among the top destinations for Indian exports and Egypt, the world’s top wheat buyer, has recently agreed to buy Indian wheat for the first time.
The deal is still officially on the card because India has said it will still allow exports to countries requesting supplies “to meet their food security needs”, but market experts are skeptical.
“There is uncertainty as to how much India will export to countries that consider food security needs,” he said. They may export to friendly neighboring countries, “said Carlos Mera, an agricultural products analyst at Rabobank.