Commodities Corner: Indian ban set to chafe wheat market

World rural commodity markets have been whacked by India’s immediate ban on wheat exports and extreme volatility is forecast when trading resumes later today.

India is the world’s second biggest wheat producer and the ban will add to fears of a global shortage now that wheat, barley and sunflower seed exports from Ukraine and Russia have been either curtailed or banned thanks to the Russia’s invasion.

At the same time, production and exports from the US and Australia are projected to fall in the next year, placing further upward pressure on global prices. Canada and Argentina, two other major producers have seen their crops hit by drought and wet weather.

Wheat prices are 34% higher than before the Russian invasion, as exports from the Black Sea have fallen, slashing world supply and stock projections into 2023.

Before the invasion, Ukraine and Russia were responsible for 30% of world exports.

It is the latest in a growing wave of commodity nationalism this year, driven mostly by the local prices of wheat, oils and other food commodities rising (but so far not sugar).

The Financial Times reported at the weekend that “Traders predicted chaotic trading on the international wheat markets when they open at the start of next week as the ban would be a blow to buyers looking for wheat supplies. “It’s an absolute bombshell,” said Swithun Still, a grain trader based in Switzerland. “There will be panic on the wheat futures markets when they open,” he added.

India’s wheat exports rose to a record high of more than 7 million tonnes in the year ended March as the war quickly halted exports from Ukraine.

But terrible heat in March and April, where temperatures of up to 45C hit large parts of India’s wheat belt (in the Punjab), raised concerns about the country’s domestic supply.

That saw the government downgrade its forecast for the current crop by 5% to 105 million tonnes for the year to June. Now that figure is in doubt, judging by the continuing heat and the rapid introduction of the ban.

Australia will benefit with a forecast harvest of 36.3 million tonnes of wheat (affected by rain and wet ground though). That will be around 5% more than last year and the largest harvest on report.

But the 2022-23 harvest is projected to fall 20% to 29 million tonnes because of the wet weather and flooding.

Exports are forecast to fall to 22 million tonnes, down 20% (as well) from the 27.5 million tonnes shipped in 2021-22.

The effects of the Indian ban and the problems in and around the Black Sea could help offset the financial impact from the fall in Australian production and exports.

That will make GrainCorp happy after its record interim profit and dividend last week and expectations of a solid second half.

But for big industrial scale bread makers, bakeries, cafes, retailers and other wheat users, it’s another inflationary boost they did not want; nor will the Consumer Price Index in coming months.

Riots and demonstrations on the streets of Iran on Friday saw shops set alight by people protesting at the soaring cost of bread (because of the higher wheat prices) and that will focus attention on rising bread prices elsewhere.

But there are a group of winners here – if not lifted soon, the Indian ban will make the smiles in the Australian wheat growing industry even wider.

India has about 10% of the world’s grain (mostly wheat) reserves, according to the United States Department of Agriculture USDA), thanks to the heavy subsidising of its farmers.

The wheat export ban, announced in a Commerce Ministry notice dated Friday, is an about-face from earlier statements from Prime Minister Narendra Modi.

The Indian leader told President Biden in April that the country was ready to supply the world from its reserves. He also urged domestic wheat producers to seize the opportunity, saying that Indian officials and financial institutions should support exporters.

The Commerce Ministry notice on Friday said that wheat exports were immediately banned, with some exceptions, because a sudden spike in the crop’s price had threatened India’s food security.

Limited exports will be allowed at the request of individual governments whose own food supply is vulnerable, the notice said.

Indonesia started the commodity export bans with a ban on thermal coal exports in January, later eased, and then a series of restrictions on exports of palm oil, now an outright ban.

Drought and an extended hot spring saw India start the ban from last Saturday, just days after saying it was targeting record shipments over the rest of this year.

The heatwave has cut local production and forced local grain prices to all-time highs last week.

Global buyers were banking on the world’s second-biggest wheat producer for supplies after exports from the Black Sea region disappeared.

India was targeting exports at a record 10 million tonnes this year.

Indian traders are believed to have contracted to export around 4 million tonnes of wheat in less than two months of the marketing year, of which around 1.2 million tonnes have been exported

The Indian ban could drive up global prices to new peaks and hit poor consumers in Asia and Africa.

The ban came after the US commodity markets finished trading for the week – Chicago Board of Trade wheat prices got near the $US12 a bushel level on news of a fall in the size of the US crop and the lowest forecast exports figure for the US since 1971-72.

Wheat hit an all-time high of $US12.94 a bushel in Chicago in March after the Russian attack on Ukraine. Friday saw Chicago Board of Trade wheat futures close at $US11.6725 a bushel, up 50% from the start of the year, while the European wheat futures market was at 410.75 euros a tonne on Friday night, just short of its record high in March.

The US Department of Agriculture forecast that global supplies for the coming crop year would fall for the first time in four years with US wheat production is expected to contract to 14.5 billion bushels this year (from 15.1 billion last year), a fall mainly due to a reduction in crop area.

Thanks to a shortage of and rising cost of fertilisers (due to the Russian invasion of Ukraine), US farmers have shifted to less fertiliser-intensive crops such as soybeans, which are expected to increase from 4.4 billion to 4.6 billion bushels.

But the big surprise was the forecast drop in US exports to their lowest level in 50 years to total 775 million bushels, the lowest since 1971-1972 marketing year.

The war in Ukraine is expected to cut that country’s production by 35% yearly to 21.5 million tonnes.


Outside wheat it was a tough week for most commodities thanks to the strength of the US dollar as the strain from cryptomarkets saw investors look for safety in the greenback.

Oil again dominated, settling higher for West Texas Intermediate and Brent on Friday but that wasn’t enough to erase the impact of falls earlier in the week.

West Texas Intermediate oil futures rose 4.1% to $US110.49 a barrel, the highest close since March 25. Brent settled at $US111.15 a barrel on Friday.

US crude rose 0.66% for the week and Brent eased 0.75%.

US Natural gas futures rose, but fell 4.7% for the week, only the third weekly retreat in the last 13.

US energy firms last week again added oil and natural gas rigs for an eighth week in a row

The oil and gas rig count rose nine to 714 in the week to May 13, its highest since March 2020, according to energy services firm Baker Hughes.

Baker Hughes said that puts the total rig count up 261, or 58%, over this time last year.

The number of oil-directed rigs rose six to 563, also the highest level since March 2020, while gas rigs gained three to 149, their highest since September 2019.

US oil production remains low compared to pre pandemic levels. The Energy Information Administration estimates US production totalled 1`1.8 million barrels in the latest week, down 100,000 barrels from the previous week and still well under 12 million barrels a day, despite the surge in rig numbers.

US production peaked at 12.9 million barrels a day in 2019 and the EIA doesn’t see output regaining that level until late 2023.


US 10-year bond yields hit a year high of 3.203% early last week and then eased as the concerns about the economy and cryptos mounted. Friday saw it end at 2.93% for the 10-year T-bond.

The US dollar firmed against most currencies.

The Aussie dollar traded around 69.35 US cents. That was down 2% over the week but up from under 69 US cents early in Friday’s session.

The firmer dollar again hit commodity prices (but not wheat)

Gold, copper and silver all fell last week – copper more in response to continue concerns about demand from China.

Comex gold lost 3.9% over the week to end at $US1,807.40 an ounce, Comex silver shed more than 6% to settle at $US20.98 and Comex copper dropped 1.9% to settle at $US4.18 a pound.

Iron ore prices again weakened with the Singapore futures price ending at $US127.20 a tonne on Friday for 62% Fe fines delivered to northern China. That was down $US10 a tonne from the week before.

Australian premium coking coal ended at $US441 a tonne in Singapore, down a touch from the $US444 a tonne close the previous Friday.