According to reports, the U.S. season-average farm price of wheat is projected to reach a record $10.75 per bushel this year.
India's ban on exports, the lack of Black Sea exports because of the war in Ukraine and the slow planting progress on spring wheat have also driven the Chicago and Minneapolis wheat into new contract highs.
On May 14, India banned wheat exports to other countries as a sweltering heatwave reduced output and domestic prices soared to a record high. Just days earlier, India said it was eyeing record shipments this year. (Related: India cuts off wheat exports amid skyrocketing prices, destructive heatwave.)
The Indian government stated that it would still permit exports supported by already issued letters of credit to nations that requested supplies "to meet their food security needs."
Senior government officials said in a press conference that the move to ban overseas shipments was not forever and could be changed.
Global buyers were counting on supplies from the world's second-biggest wheat producer after exports from the Black Sea region dropped following Russia's invasion of Ukraine last February 24. Prior to the ban, India has targeted to ship a record 10 million tons this year.
The officials stated that there was no sudden drop in wheat output this year, but unrestricted exports had led to an increase in local prices.
India's Commerce Secretary BVR Subrahmanyam told reporters in New Delhi that they "don’t want wheat trade to happen in an unregulated manner or hoarding to happen."
Although India is not one of the world's top wheat exporters, the ban has driven global prices to new heights considering the already tight supply has hit poor consumers in Asia and Africa.
"The ban is shocking. We were expecting curbs on exports after two to three months, but it seems like the inflation numbers changed the government's mind," a Mumbai-based dealer with a global trading firm remarked.
Increasing food and energy prices drove India's yearly retail inflation near an eight-year high in April, reinforcing anticipations that the central bank would bring up interest rates. Wheat prices in India have increased to record highs with several spot markets hitting 25,000 rupees ($320) per ton, which was well above the government's minimum support price of 20,150 rupees.
Rising fuel, labor, transportation and packaging costs are also raising the price of wheat flour in India.
"It was not wheat alone. The rise in overall prices raised concerns about inflation and that's why the government had to ban wheat exports. For us, it's abundance of caution," said a senior government official who requested anonymity as talks about export curbs were private.
India had already outlined its record export target for the fiscal year that started on April 1, stating it would send trade delegations to nations such as Morocco, Tunisia, Indonesia and the Philippines to seek ways to raise shipments.
In February, the government predicted production of 111.32 million tons, but it cuts the prediction to 105 million tons in May.
According to a New Delhi-based dealer with a global trading firm, rises in temperatures in mid-March means the crop could instead be around 100 million tons or even less. The dealer added that the government's procurement fell by nearly 50 percent and the spot markets are receiving lower supplies than the previous year, which indicates a lower crop yield.
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Watch the video below to know why India's wheat export ban will have an immediate effect on global food prices.
This video is from the SecureLife channel on Brighteon.com.