Ukraine-Russia crisis: global wheat prices at a 14-year high, India’s export potential beckon.
Global wheat prices have risen to more than $11 a bushel (more than $400 per tonne), a 14-year high, as imports from Russia and Ukraine have been completely stopped as a result of the Kremlin’s invasion of Kyiv.
With members of the North Atlantic Treaty Organization and their allies adopting sanctions on Russia since February 24, when the Putin government became assertive, experts expect grain prices to rise.
Big worldwide purchasers are seeking wheat supplies, and countries in the Middle East and North Africa (MENA) area are concerned since they rely substantially on wheat supplies from both of these countries.
What is causing the sharp rise?
May wheat contracts on the Chicago Board of Trade were quoted at $11.35 per bushel ($417 a tonne) on Thursday. Prices have risen by more than 7% in the previous 24 hours and 22.5 percent in the last week.
Wheat prices have risen for a variety of reasons. The first is concern about supply in MENA since the region’s countries have been plagued by rising food prices and a lack of foodgrain availability.
Wheat has also risen after a number of Russian banks were barred from using the worldwide SWIFT (Society for Worldwise Interbank Financial Telecommunication) network as part of the sanctions imposed on Russia for its invasion of Ukraine.
Grain exporters are concerned that the SWIFT development may prevent them from completing their deals. Traders warn out that following such an expulsion by SWIFT, Iran lost 30% of its export profits.
Black Sea shipping has been halted
Another source of concern is that Russian forces are closing in on the Port of Odessa, which is part of a chain of ports in Ukraine. The port on the Black Sea coast has been temporarily closed, with the US claiming that Russian ships are their route to Ukraine’s third-largest city.
‘Total shipments from the Black Sea have ceased. This is what is causing the concern,’ said a trade expert based in New Delhi.
According to reports, wheat buyers are going to the United States, South America, and Europe for supply, causing prices to rise in recent sessions. Some countries are considering accumulating stockpiles, fearing that the crisis would last for a long time.
The key reason for the wheat market reaction is that Russia is the largest exporter of the foodgrain, accounting for approximately 30% of world exports in 2020-21 along with Ukraine.
Russia sold 39.1 million tonnes (mt) and Ukraine 16.85 million tonnes (mt) of the total 198.75 mt shipments in 2020-21, according to the US Department of Agriculture. Russia’s exports are expected to be 35 mt and Ukraine’s exports are expected to be 24 mt of the world exports of 208.44 mt during the current marketing season (August 2021-July 2022).
Prices for Indian exports
The Russia-Ukraine conflict has created new prospects for Indian wheat, notably in Asia. It has also resulted in wheat export prices rising by $20-25 per tonne in the last week, reaching $325 per tonne on Wednesday.
According to a trading source, if the Russia-Ukraine crisis continues for a few weeks, Indian wheat prices will improve and remain the most competitive in the area. According to the source, Indian wheat is usually discounted by $10-15 per tonne when compared to Russian and Ukrainian wheat.
The present crisis has aided in the reduction of the discount since demand has come from a variety of Asian countries. ‘The majority of exports are traveling from Kandla to South Korea, the Philippines, and in parts to West Asia,’ a global trader explained.
Since most Asian nations are aiming to satisfy their short-term requirements, Indian exporters have inked contracts for about one million tonnes of wheat for shipping over the next two months.
Shipping expenses are expected to rise
According to the Delhi-based expert, the present geopolitical environment would cause all shipping-related prices, from freight to insurance, to rise. ‘Meeting foodgrain demand would be a pricey proposition for some of the nations that rely on imports,’ the expert said, adding that rising crude oil prices will exacerbate the problem.
Brent crude oil seemed set to surpass $120 per barrel on Thursday, climbing more than 5% to $119.08 per barrel. WTI crude oil has broken the $115 mark and is now trading at $115.90. Fuel costs will climb as crude oil prices rise.
Higher crude oil prices, according to agricultural economists, have traditionally resulted in higher foodgrain prices, such as wheat, because input costs rise with fuel inflation.
Wheat exports from India are supported by expectations of a record crop this year and sufficient reserves at the Food Corporation of India (FCI). According to the Ministry of Agriculture and Farmers’ Welfare’s second advance estimates, wheat output this year will likely reach a record 111.32 mt, up from 109.59 mt last year.
A record FCI purchase is planned
FCI has 28.27 mt of wheat as of February 1, and with the fresh harvest that has begun to arrive in some regions of the nation, India should be able to fulfill domestic demand. The Centre has set a record procurement of 44.4 million tonnes of wheat for this year.
Wheat prices in the domestic market are hanging at the minimum support price of ₹2,015 per quintal. Prices are significantly higher in marketplaces in Uttar Pradesh’s Agra and Madhya Pradesh’s Ujjain.
According to traders, prices will continue to rise as long as sanctions on Russia remain in place. Because India has not imposed any sanctions on the Kremlin, the current circumstance allows Indian traders to go worldwide by trading in Russian grain.