Escalating Tensions and Price Surge
Global wheat prices have gained over 10% since the beginning of this week and continue to gain after Russia pulled back from the Black Sea Grain Initiative (BSGI) and attacked the Port of Odesa, the gateway to Ukrainian grain exports. At 7.15 pm IST, wheat futures on the Chicago Board of Trade surged to USD 705.58 per bushel (USD 259 per tonne). Over the last two sessions, the cereal also has gained over 10% percent from levels of USD 636 per bushel.
Impact on the Global and Indian Wheat Market
The Indian trading community is betting on the government’s improved relations and diplomacy with Russia in case the country has to import wheat later this year in the wake of supplies not being able to match the demand. According to the US Department of Agriculture, 14 African countries depend on the Black Sea region for their wheat requirements, with Mauritania, Ethiopia, and Djibouti totally depending on shipments from Ukraine. Countries importing wheat could find alternatives in French, US, Australian, and Canadian wheat but their prices might rise in tandem.
Uncertainty and Potential Solutions
Research agency BMI, a unit of Fitch Solutions, said it does not rule out “the occurrence of a short-run period of upward price spikes, heightened volatility, and elevated risk premia”. However, it said “several factors have emerged that would serve to dampen the sensitivity of global agricultural commodity markets to a potential expiration of the BSGI (Black Sea Grain Initiative) in mid-July”. Türkiye’s low profile in the BSGI adds to the uncertainty. For India, the concern lies in the possibility of insufficient supplies to meet the demand for wheat, potentially leading to imports. The government may explore government-to-government imports from Russia or consider reducing import duties to facilitate imports if needed.
Conclusion
Wheat futures have risen significantly, causing concerns for countries heavily reliant on the Black Sea region for wheat, particularly in North Africa and West Asia. For India, the situation poses challenges as production has been affected by adverse weather conditions, potentially leading to a shortage of wheat. The Indian government may consider imports, including government-to-government deals with Russia, to meet the demand. However, there are worries that independent imports could be costly. Until the situation calms down, reduction in wheat prices can’t be expected.