India bans wheat exports, adding to global supply crunch

India placed a ban on exports as of May 13, blocking a huge supply from the markets at a time when global supply was already falling after Russia's invasion of Ukraine.

The Indian government restricted wheat exports to rein in domestic prices of the food grain, according to a May 14 notice from the Directorate General of Foreign Trade. The ban excludes shipments with irrevocable letter of credit issued on or before May 13.

The Russia-Ukraine conflict squeezed out a major chunk of supplies from the Black Sea region, leaving open a wide supply gap, a situation that Indian traders earlier were looking to bank on as they expected elevated exports in the marketing year 2022-23 (April-March).

But India's ban means that wheat also sold for May-August shipments would face force majeures, Singapore-based traders said May 14.

"There's a lot of wheat sold June, July, August and [second] half [of] May and now consumers are short everywhere," a Singapore based trader said.

As much as 2-3 million mt of wheat for the flour and feed industry is at stake, traders said.

South Korea feed buyers had earlier booked eight cargoes of Indian feed wheat for delivery June-July. Philippines has at least five cargoes while Thailand has at least one or two shipments. Indonesia has also booked some volumes. The total volume of wheat to Asian buyers could be close to 1 million mt.

Australian wheat

Alternative supplies include Australian wheat, but supplies there are also tight and shipping slots are sold out for June-July shipments, sources said. Prices will likely rise when global futures trading resumes on May 16, sources said.

APW (Australian Premium White) Wheat FOB Australia and ASW (Australian Standard White) Wheat FOB Australia jumped to a two-month high, $20/mt up on the day to $440/mt and $410/mt respectively, supported by a surge in futures after the US World Agricultural Supply and Demand Estimates report on May 13.

In Australia, supply chain logistics is another factor putting a strain on exporters. Lack of truck drivers in the continent due to COVID and skill shortage coupled with a large export program has put a squeeze on Australia wheat markets, sources said.

S&P Global Commodity Australian wheat prices historical peaked on March 8, 2022, with APW at $447/mt and ASW at $412/mt.

Indian wheat

The ban notice came just a day after the commerce ministry said India has set a target to export a record 10 million mt of wheat in MY 2022-23 amid rising demand for the grain globally and likely record output.

The Indian government in February projected wheat output at a record 111.3 million mt for MY 2022-23. However, the crop is now seen at around 105 million-106 million mt as severe heatwave led to moisture loss and shriveled grains, market participants said.

Wheat prices in domestic markets of India had skyrocketed since early April due to export demand and an anticipated smaller crop this year. Prices of wheat in Indore, a key physical market, rose 60% on month to 26,000 rupees/mt ($335.5/mt) on May 13.

Local wheat prices have started to correct lower after the news broke, one Mumbai-based trader said. On May 14, wheat prices in Indore decreased to 22,000 rupees/mt ($285/mt), down from 26,000 rupees/mt ($335.5/mt) on May 12.

Rising prices of wheat, a staple food grain in India, spurred a sharp increase in the consumer price index in April. India's prices of food items, which make nearly half of the index, rose 8.38% on year in April, compared with 7.68% in March.

"The export ban was expected but not so soon. The wheat price which rose over 50% in a week for premium quality meant for exports. This was caused due to high export and domestic demand which was further exacerbated by heatwave crop loss," Rahul Chauhan, director of agriculture commodity research firm India Grain, said.

However, some traders say the restrictions may not hit trade as exporters have already acquired irrevocable letters of credit to ship 5 million-6 million mt wheat over the next few months.

In domestic markets, wheat supply will increase, and prices will drop across the country due to the notification, said S. Pramod Kumar, vice president of Roller Flour Millers Association.

"A significant number of exporters have received the needed documentation. But the notification will lead to some dip in prices in domestic markets," Ankit Vaish, founder of Namami Agro Industries, said.

With India restricting exports, wheat prices are likely to rise sharply across key origins, like Ukraine, Canada, and the US.