Production, logistical concerns cast shadow over India's wheat export potential

India's wheat exporters may not be able to match government expectations of making deeper inroads into global wheat markets in the current marketing year 2022-23 (April-March) as extreme weather and logistical hurdles were seen hampering the country's trade potential in coming months, sources told S&P Global Commodity Insights.

India emerged as a key supplier of wheat in February-March after Russia's invasion of Ukraine stalled most of the supplies from the Black Sea region.

The Indian government in February also projected wheat output at a record 111.3 million mt for MY 2022-23.

Banking on likely record production, markets were expecting Indian wheat exports to reach an all-time high of 11 million-12 million mt in MY 2022-23, basing their estimates on bumper crop expectations, according to an official with India's food ministry.

However, recent heatwaves across northern India are seen reducing yields, and Indian traders are now anticipating wheat production to be 5 million-6 million mt lower than the government's expectations.

Wheat output in MY 2022-23 is now seen at around 105 million-106 million mt as the severe heatwave led to moisture loss and shriveled grains, market participants said.

India typically consumes around 98 million-100 million mt/year of wheat.

A likely reduction in India's wheat crop size is likely to reduce its exportable surplus, Delhi-based exporter Anand Goyal said.

India exported around 7.85 million mt wheat in MY 2021-22, almost tripling from 2.1 million mt the year before.

With supply now seen shrinking, exports could fall to 7 million-8 million mt in MY 2022-23, market participants said.

Logistical issues surrounding transport are adding further pressure on India's wheat trade, traders said.

Indian railways have recently been prioritizing coal transfers over wheat as major parts of the country are facing power shortages, an official with a wheat trading firm said.

The price of Indian wheat sold to Asian buyers has increased by around $50/mt or 16.7% since February as more destinations are opening to Indian wheat amid tightening wheat and feed grain supplies, a Bangalore-based wheat trader said.

In February, South Korea feed buyers booked several Indian cargoes at around $330/mt CFR and below. By April, delivered prices to the region including the Philippines and Thailand had soared to $385-$388/mt CFR, based on S&P Global trade sheet data.

The trend is bullish as Indonesian buyers are seeing now offers for July shipments at $395-$400/mt, market sources said.

India wheat prices are also rising due to persisting market chatter about the country imposing bans or limiting exports during June-July, traders said.

A likely sharp decline in procurement in the current financial year and spike in wheat-flour prices are also seen fueling chatter about an export ban, a New Delhi-based flour miller said.

"The likely fall in wheat yields in north India due to heatwaves across major producing regions might force the government to impose limits on exports, but a final decision is yet to be taken," an official with the government said.

With domestic wheat prices skyrocketing, India may also be staring at a further rise in food inflation. The country recorded food inflation at 7.68% in March 2022, up from 4.87% in March 2021.

"However, the government is not likely to discourage Indian traders from exporting wheat, although it is keeping a close eye on wheat stocks as government procurement is slowing down due to high market prices," the official with the food ministry added.

For MY 2022-23, Indian government had procured 17.8 million mt wheat as of May 10, against the aim of 44.4 million mt, according to data from the Food Corporation of India. In MY 2021-22, the government bought 44.3 million mt wheat from farmers to service different social welfare schemes.