Wheat Prices Surge to 2-Month High Due to India’s Export Ban

Wheat prices experienced a significant increase on Monday, reaching their highest levels in over two months. This surge was fueled by India’s recent decision to impose an export ban, raising concerns over a potential global food crisis.

As of 5:20 AM ET, the front-month contract for U.S. wheat was priced at $1,231.90, reflecting a 4.7% increase after previously hovering just below the $1,250 mark.

In the wake of Russia’s invasion of Ukraine, which had disrupted exports from two of the largest wheat producers, India had emerged as a crucial alternative source for global markets. The country ranked as the eighth-largest wheat exporter the previous year and had anticipated record exports of 10 million tons for the current year following a strong harvest.

However, a prolonged heatwave across much of India significantly impacted harvest projections. The government originally estimated production to reach 111.32 million tons this year, but reports indicated that local market sources were now predicting a decrease to 100 million tons or less.

The rise in export demand has also caused domestic wheat prices to spike, contributing to broader inflationary pressures and prompting the Reserve Bank of India to raise its key interest rate for the first time since 2018.

Despite the ban, India will continue to permit exports to countries facing food security challenges, as stated by the Directorate General of Foreign Trade.

This measure is part of a growing trend where various nations are implementing administrative actions to mitigate the effects of rising global prices on their local markets. Countries like Kazakhstan and Serbia have already set quotas on grain exports, while Indonesia has restricted palm oil exports, a key cooking ingredient in South Asia and an essential component in numerous consumer products worldwide.

Compounding the tightness in the global wheat market are adverse growing conditions in some major production regions. The U.S. Department of Agriculture has projected that U.S. wheat exports may reach their lowest levels since 2015 in the ongoing marketing year, largely due to drought conditions affecting several plains states.

Additionally, the USDA indicated that Ukraine’s wheat harvest might drop by about one-third due to the ongoing conflict, further straining global supply. The shortfall of wheat from the Black Sea region is particularly challenging for North African economies, which rely heavily on imports from Ukraine and Russia for up to 80% of their needs.