Global Wheat Prices Surge After India Restricts Exports

Wheat prices (Chicago futures) surged to the maximum amount allowed due to tight global supplies, as a result of India restricting wheat exports to ensure domestic food security.

Chicago futures surged by 5.9 per cent, hovering at around $12.47 a bushel. After Russia's invasion of Ukraine, wheat prices have risen more than 60 per cent this year. This is due to the fact that Russia and Ukraine make up for almost a third of global wheat exports.

As the war in Europe led to a supply crunch in the global market, India filled the gap, easing the supply side pressure. India was able to do this because the country had a bumper export of 7 million tonnes last year, whereas crop produce of many other exporters were limited because of unfavourable weather conditions.

India is the world's largest wheat producer after China.

Now, due to concerns related to domestic food security and inflation, India has decided to limit wheat exports, with the caveat that it will continue "to support the needs of the neighbouring and other vulnerable countries."

India had earlier denied that it would halt wheat exports, but the risk of domestic food insecurity may have forced New Delhi to change its mind just weeks after it had expressed its willingness to help other countries.

The decision has heightened the risk of food shortage in the global markets and renewed supply-side constraints, which is the reason behind wheat price surge at Chicago futures.

Concerns about rising food and fuel prices also led India's central bank to raise the interest rate after four years.

India's decision will have a significant impact on the global market, which indicates how the war in Europe impacts not just a few countries but nations around the world. An attempt to simmer down the war and freeze the conflict would alleviate the risk of food insecurity and ease the pressure on global markets.

According to the United Nations' world food programme, the war in Ukraine has revealed the fragility of global supply chains and heightened the risk of global food insecurity.

According to a Financial Times report, the United States Department of Agriculture has forecasted that in the year 2022-23, global wheat production will decline. This will be a development that hasn't occurred in years.

China’s wheat harvest next month will be one of the big uncertainties in a global economy already struggling with high commodity prices, particularly in regions heavily dependent on crops from Russia and Ukraine.

If the Chinese harvest is bad in the coming weeks, it may drive up food prices further, compounding hunger and poverty in the world’s poorest countries.