Wheat prices may soar in short-term on Russia calling off Black Sea grain deal

Global wheat prices have gained more than 10 percent since the beginning of this week and continued to rise after Russia withdrew from the Black Sea Grain Initiative (BSGI) and attacked the port of Odessa, the gateway to Ukraine’s grain exports.

At 7.15pm IST, Chicago Board of Trade wheat futures rose to 705.58 US cents a bushel ($259 a ton). Over the past two sessions, the grain has gained more than 10 percent from levels of 636 cents a bushel.

India’s trading community is betting on improved relations and diplomacy between the government and Russia in case the country is forced to import wheat later this year in the wake of supplies unable to meet demand.

According to the USDA, 14 African countries depend on the Black Sea region for their wheat needs, with Mauritania, Ethiopia and Djibouti totally dependent on shipments from Ukraine. The Black Sea region meets the demands of North African countries and West Asian regions. “It will be affected the most, while Central Asia and European regions could be affected to some extent,” said trade analyst S Chandrasekaran.

Unlikely to run February 22nd

Research agency BMI, a unit of Fitch Solutions, said it did not rule out “a short-term period of higher prices, increased volatility and higher risk premium.” However, it said “several factors have emerged that will desensitize global agricultural commodity markets to the expiration of the Black Sea Grain Initiative (BSGI) in mid-July.”

The research agency said the increase in grain prices seen in February 2022 shortly after the outbreak of the Ukraine war was “unlikely to be repeated”.

The USDA said trade disruption in the Black Sea could affect access to food in various countries, particularly barley, corn, soybean oil, sunflower seed oil and wheat. Alexis M. Taylor, US Under Secretary for Trade and Foreign Agricultural Affairs, was quoted as saying that Russian grain and oilseed exports have boomed during the current marketing year, with ample supplies and competitive prices despite the war.

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This may mean that countries that depend on Russian grain supplies may not be adversely affected. “But the problem is that Russia is aggressively attacking the ports, which will lead to higher insurance and the resulting inflation,” Chandrasekaran said.

Wheat importing countries can find substitutes in French, American, Australian and Canadian wheat, but their prices may rise in tandem.

A major development in the current situation is that Turkey, which was active in BSGI earlier, has kept a low profile. “She doesn’t show any interest and is it because she wants to be part of NATO?” asked a trade source who did not wish to be identified.

Indian corner

For India, the problem now is that supplies may not be enough to meet demand, particularly for flour mills, after production was hit this year by unseasonal rains in an unusually hot March and April.

While the Ministry of Agriculture estimated the wheat harvest at a record 112.74 million tons, a section of the trade believes that production could be much lower given currently tight supplies. “We have never seen such a shortage of wheat in June and July,” said one of the millers, who asked not to be identified.

This raised concerns among some trade and consumers that India may have to import wheat later this year or earlier next year.

G2G does business with Russia

In this situation, the traders feel that India can resort to government imports from Russia to meet its requirements. “Russia may be asked to send the wheat by train to Iran to the port of Shabar, where it can be transported by ship,” the trade source said.

However, the mill owners feared that if they had to import independently, they might have to pay more, particularly to get wheat from Australia, which was a mill favourite.

On the other hand, merchants and millers expect the center to waive import duties or reduce them from the current 40 percent to facilitate imports, should the need arise.

According to the Food Corporation of India, wheat stocks in the central pool as of July 1 increased at 30.15 million tons compared to 28.51 million tons a year earlier. On the other hand, rice stocks amounted to 25.44 metric tons compared to 31.77 metric tons. Unmilled rice stocks increased slightly at 23.3 metric tons (15.72 tons of rice) vs. 23.15 metric tons (15.62 tons of rice). The shares are at their lowest since 2017.

Insufficient share

According to traders, flour mills in South India get wheat at ₹2,700-2,800 quintals from traders, while FCI offers at ₹2,200. The weighted average price of wheat across the yards of the various Agricultural Produce Marketing Committee (APMC) is currently INR 2,297 against the minimum support price of Rs 2,125.

Although the center has started offering wheat under the mills open market sale scheme, the mill owners say the 100-tonne cap per week is insufficient given the mills’ daily capacity of more than 200-tonnes.

We will only have problems when we are asked to import. “We may have to pay more in general when India imports, world prices tend to go up,” the trade source said.