Global wheat prices have surged to over $11 a bushel (over $400 a tonne), a 14-year-high, as shipments from Russia and Ukraine have been totally disrupted following the Kremlin’s invasion of Kyiv.

With the North Atlantic Treaty Organization members and their allies announcing sanctions against Russia since February 24 when the Putin administration turned aggressive, analysts see prices for the cereal elevated. 

Big global buyers are looking for wheat supplies and countries in the Middle East and North Africa (MENA) region fear the worst since they depend heavily on wheat supplies from both these nations. 

Why the surge

On Thursday, May wheat contracts on the Chicago Board of Trade were quoted at $11.35 a bushel ($417 a tonne). Prices have gone up by over seven per cent in the last 24 hours and 22.5 per cent in the past week. 

Wheat prices have increased due to a couple of reasons. First is the concern over the supply in MENA since the countries in the region have been affected by rising prices and the non-availability of foodgrain. 

Wheat has also gained since quite a few Russian banks have been expelled from the global SWIFT (Society for Worldwise Interbank Financial Telecommunication) as part of the sanctions against Russia for invading Ukraine. 

Grain traders fear that they will be unable to put through their transactions in view of the SWIFT development. Traders point to how Iran lost 30 per cent of its export earnings following such an expulsion by SWIFT. 

Black Sea shipments stalled

The other reason for the panic is that Russian troops are closing down on Port of Odessa, a chain of ports, in Ukraine. The port on the Black Sea coast has been temporarily shut with the US reporting that Russian ships are heading towards the third-largest city of Ukraine. 

“Total exports from the Black Sea have come to a halt. This is the reason for the panic reaction,” said a New Delhi-based trade analyst.

USDA projections

Reports said wheat buyers are turning to the US, South America and Europe for supplies, resulting in prices skyrocketing over the last couple of sessions. Some countries are considering building inventories, fearing the crisis may prolong for a while. 

The primary reason for the wheat market reaction is because Russia is the largest exporter of the foodgrain and together with Ukraine made up nearly 30 per cent of global exports during 2020-21.

According to the US Department of Agriculture, Russia exported 39.1 million tonnes (mt) and Ukraine 16.85 of the total 198.75 mt shipments in 2020-21. For the current marketing season (August 2021-July 2022), Russia’s exports are projected at 35 mt and Ukraine’s 24 mt of the global exports of 208.44 mt. 

Indian export prices

The Russia-Ukraine standoff has opened up opportunities for Indian wheat, particularly in the Asian region. It has also resulted in prices for wheat exports increasing by over 10 per cent in the past week since the Russian offensive.

“Indian FOB (free-on-board) price is around $335-340 a tonne,” said Rajnikanth Rai, Divisional Chief Executive, ITC Agri-Business.

“Wheat offers are at $340-350 FOB now,” said Nitin Gupta, Vice-President, Olam Agro India Ltd. 

A trading source told BusinessLine that of the Russia-Ukraine issue prolongs for a couple of weeks, Indian wheat prices would improve and be still the most competitive in the region. The source said Indian wheat is always discounted against Russian and Ukraine wheat by $10-15 a tonne. 

The current crisis has helped to shed the discount since demand has been coming from various Asian nations. “Most of the shipments are going from Kandla to South Korea, the Philippines and in bits to West Asia,” a multinational trader said.

Till now, Indian exporters have signed close to one mt of wheat for shipments over the next two months since most of the countries in the Asian region are looking to meet their short-term requirements. 

“There is not much offering as arrivals of wheat (from the new crop) is still very low, though demand is good,” Rai said. The arrival of the new wheat crop, ready for harvest, has been delayed by 15-20 days due to cold weather in the growing regions.

Shipping costs to rise

The Delhi-based analyst said the current geopolitical situation will also result in all shipping-related charges from freight to insurance increasing. “Meeting foodgrain demand is going to be a costly proposition for some of the countries depending on imports,” the analyst said, pointing out that the rise in crude oil prices will only aggravate the situation.

On Thursday, Brent crude oil looked to top $120 a barrel, rising by over five per cent to $119.08 a barrel. WTI crude oil crossed $115 to rule at $115.90. The rise in crude oil prices will result in fuel prices.

According to agricultural economists, higher crude oil prices historically have led to higher prices for foodgrain prices such as wheat since input costs increase with fuel inflation. 

India’s wheat exports are aided by prospects of a record production this year and ample stocks with the Food Corporation of India (FCI). According to the second advance estimates of the Ministry of Agriculture and Farmers’ Welfare, wheat production this year will likely be a record 111.32 mt against 109.59 mt last year. 

Record FCI buy targeted

As of February 1, FCI had 28.27 mt of wheat and including the new crop that has begun to arrive in some parts of the country, India should not have problems with meeting domestic demand. For this year, the Centre has targeted a record procurement of 44.4 million tonnes of wheat. 

In the domestic market, wheat prices are hovering near the minimum support price mark of ₹2,015 a quintal. In markets, in Uttar Pradesh’s Agra and Madhya Pradesh’s Ujjain, prices are ruling even higher. 

Traders say prices will continue to rule higher as long as sanctions against Russia remain in place. The current situation also gives Indian traders to go global by trading in Russian grain since India has not announced any sanctions against the Kremlin. 

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