Wheat Prices Soar As India Restricts Exports

Zero Hedge – by Tyler Durden

Update (Sunday): Wheat futures in Chicago jumped 5.9% to $12.47 a bushel Sunday evening after India restricted wheat exports to preserve its food security. Since the beginning of May, prices have skyrocketed nearly 20%.

India’s decision to halt wheat exports was announced on Friday. The government said it must safeguard domestic supplies amid heat waves that threaten crop yields. 

Directing the wheat exports through government channels would not only ensure fulfilling the genuine needs of our neighbors and food-deficit countries, but also control inflationary expectations,” India’s food ministry said in a statement.

A grains analyst at Melbourne-based Thomas Elder Markets, Andrew Whitelaw, told Bloomberg, “if this ban occurred in a normal year, the impact would be minimal, but the loss of Ukraine volumes exacerbates the issues.”

The jump in wheat futures underlines just how tight global supplies are following top-producer Ukraine being knocked offline because of the war. Higher wheat prices will continue to drive food inflation.

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India prohibited wheat exports effective immediately, saying the nation’s food security was under threat, partly due to heatwaves that damaged yields in the country and disruptions to global grain markets in the Black Sea breadbasket region.

The notice was published in the government gazette by the Directorate of Foreign Trade on Friday. It read, “there is a sudden spike in the global food prices of wheat arising out of many factors, as a result of which the food security of India, neighboring and other vulnerable countries is at risk.”

India said it was still committed to exporting wheat to “neighboring and other vulnerable developing countries which are adversely affected by the sudden changes in the global market for wheat and are unable to access adequate wheat supplies.”

The move by the world’s second-largest wheat producer comes as food protectionism runs rampant worldwide as countries limit or restrict exports of food staples to rein in domestic prices.

Wheat futures are expected to jump Sunday evening and add to record-high food inflation, crushing emerging market economies the hardest. High food prices have already resulted in inflation riots in several countries, one being the ongoing social instability unfolding in Sir Lanka.

The ban comes as no surprise considering India has been mulling trade restrictions this month as heatwaves have damaged wheat yields.

Wheat production this year in the South Asian nation is expected to decline after rising for a half-decade. Other top-producing wheat countries will experience production drops by the end of the growing season and may exacerbate the fall in global wheat production.

“We now have an environment with another supplier removed from contention in global trade flows,” Andrew Whitelaw, a grains analyst at Melbourne-based Thomas Elder Markets, told Bloomberg. “The world is starting to get very short of wheat,” he added.

A Mumbai-based commodity dealer with a global trading firm told Reuters the ban is “shocking.” The trader added: “We were expecting curbs on exports after 2-3 months, but seems inflation numbers changed the government’s mind.”

Add protectionism to the list of what could spark even more chaos for global food markets. If countries continue to place export restrictions on food, the crisis could deepen.


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