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Indian Wheat Export Ban could Push Global Wheat Prices to New Highs
2022-05-18

  India imposed a wheat export ban on Saturday. Although India has previously said that this year's goal is to break wheat shipments, a heatwave in the country will reduce wheat production. Domestic wheat prices in India hit a record high.

  The Indian government will still allow wheat exports for letters of credit that have been issued and to countries for food security needs. Meanwhile, senior government officials have also said that the move to ban overseas shipments is not permanent and may be revised depending on the situation.

  After Russia invaded Ukraine on February 24, grain exports from the Black Sea region fell sharply; so global buyers were pinning their hopes on supplies from the world's second-largest wheat producer. Before the ban, India was targeting a record 10 million tonnes of shipments this year.

  While the country's wheat production has not fallen significantly this year, unregulated exports have contributed to a rise in local prices, commerce ministry officials noted. Therefore, the Indian government does not want the wheat trade to be carried out in an unregulated manner, nor does it want speculative hoarding of wheat.

  Although India is not the world's largest wheat exporter, given that global food supplies are already quite tight, India's export ban could push global wheat prices to new highs, hitting consumers in developing Asia and Africa particularly hard. .

  Industry insiders viewed the ban as a shock, according to a Reuters interview with an international trading firm in Mumbai. The industry had expected the Indian government to restrict exports in two or three months, but the inflation data appeared to have changed the government's mind.

  Rising food and energy prices pushed retail inflation in India near an eight-year high in April and also reinforced expectations that the country's central bank will aggressively raise interest rates.

  Indian wheat prices have risen to record highs, reaching 25,000 rupees (about 2,180 yuan) a tonne in some spot markets, well above the government's minimum support price of 20,150 rupees.

  In addition, rising fuel, labor, transportation and packaging costs have also pushed up the price of wheat flour in India.

  According to a Reuters interview with a senior government official in India who asked not to be named, it is not just the rise in wheat prices in India. The overall price rise has raised concerns about inflation, which is the root cause of the Indian government's ban on wheat exports. It was a very cautious decision for the Indian government.

  The Indian government just last week unveiled record export targets for the next fiscal year and said it would send trade missions to countries including Morocco, Tunisia, Indonesia and the Philippines to explore ways to boost shipments.

  In February, the Indian government forecast wheat production at 111 million tonnes, the sixth record in a row, but lowered its forecast to 105 million tonnes in May.

  India's average monthly temperature soared to a record since 1901 since March, causing the wheat crop to wither during the critical growing season. Because wheat is unusually sensitive to heat, this round of heat shortened the critical grain-filling period, which in turn reduced crop weight.

  Generally speaking, the temperature of about 30 degrees is conducive to grain filling, while the local temperature in India has exceeded 35 degrees in mid-March, and even approached 40 degrees at the end of March, resulting in premature grain ripening.

  Unfortunately, the World Meteorological Organization and the India Meteorological Department also recently issued warnings that northern and western India are expected to face extreme high temperatures of 50 degrees again in May, approaching a century-old temperature record.

  Soaring temperatures in mid-March meant the harvest could be stuck at around 100 million tonnes or even lower, according to an international trading firm based in New Delhi. "Government purchases are down more than 50 percent. The spot market is also getting much less supply than last year, all of which point to a lower harvest."

  Extreme weather will reduce India's wheat production by about 6 percent, according to estimates by India's Ministry of Consumer Affairs, Food and Public Distribution. However, according to estimates from the Indian Farmers Forum, wheat production across India will fall by even 15%. If the forecast comes true, India will instead face the dilemma of having to import wheat on a small scale.

  Taking advantage of rising global wheat prices following Russia's invasion of Ukraine, India exported a record 7 million tonnes of wheat in the fiscal year ended in March, up more than 250 percent from the previous fiscal year.

  Rajesh Paharia Jain, a grain futures trader in New Delhi, believes that "the increase in wheat prices is quite modest, and prices in India are still significantly lower than global prices." He pointed out that wheat prices in parts of India actually jumped to current levels last year, so He sees the export ban as a knee-jerk reaction from the government.

  India could have exported at least 10 million tonnes of wheat this fiscal year despite reduced production and government purchases by state-run Indian food company FCI.

  So far, FCI has bought just over 19 million tonnes of wheat from domestic farmers, compared with a record 43.34 million tonnes of total purchases last year. FCI buys food from local farmers and implements food welfare programs for the poor.

  However, now, unlike in previous years, Indian farmers are more willing to sell their wheat to private grain traders because they offer a higher price than the government's fixed price, a premium of more than 10%.

  India exported a record 1.4 million tonnes of wheat in April and has already signed deals to export about 1.5 million tonnes in May. India's wheat export ban will undoubtedly continue to push up global wheat prices; however, there are no bigger suppliers on the market at the moment.