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

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Global wheat prices have gained over 10 per cent 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 705.58 US cents a bushel ($259 a tonne). Over the last two sessions, the cereal has gained over 10 per cent from levels of 636 cents a bushel.

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 unable 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. “The Black Sea region meets the demand of countries in North Africa and West Asia regions. They will be affected the most, while Central Asia and European regions could be affected to some extent,” said trade analyst S Chandrasekaran.

Feb ‘22 run unlikely

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”.

The surge in grain prices that was seen in February 2022 soon after the Ukraine War broke out “is unlikely to repeat”, the research agency said. 

The USDA said the Black Sea trade disruption can affect food access in various countries, particularly to barley, corn, soyabean oil, sunflower seed oil, and wheat. USDA Under Secretary for Trade and Foreign Agricultural Affairs Alexis M. Taylor has been quoted as saying that Russia’s grain and oilseed exports have thrived during the current marketing year with ample supplies and competitive prices despite the war.

Alternative sources

This could mean that countries depending on Russian grain supplies may not be adversely affected. “But the problem is that Russia is aggressively attacking ports, which would result in higher insurance and resultant inflation,” said Chandrasekaran. 

Countries importing wheat could find alternatives in French, US, Australian and Canadian wheat but their prices might rise in tandem. 

A key development in the current situation is that Turkey, which was active in the BSGI earlier, has been keeping a low profile. “It is not showing any interest and is it because it wants to be part of NATO?” wondered a trade source who did not wish to be identified.

The Indian angle

For India, the problem now is that supplies may not be ample to meet the demand, particularly the flour mills, after production this year has been reportedly affected by unseasonal rains in March and unusually hot April.

While the Ministry of Agriculture has estimated the wheat crop at a record high of 112.74 million tonnes (mt), a section of the trade believes that the output could be far lower given the currently tightness in supplies. “We have never witnessed such a tight supply in wheat in June and July,” a miller said on condition of anonymity. 

This has raised fears among a section of the trade and consumers that India might be forced to import wheat later this year or earlier next year. 

G2G deals with Russia

In that case, traders feel that India could resort to government-to-government imports from Russia to meet its requirements. “Russia could be asked to send wheat by train to Iran to Chhabbar port from where it could be brought by ship,” said the trade source. 

However, millers fear that if they have to import independently, they may have to pay more, particularly to get wheat from Australia, the preferred one for millers. 

On the other hand, traders and millers expect the Centre to either waive the import duty or reduce it from the current 40 per cent to facilitate imports, if the need arises. 

According to the Food Corporation of India, wheat stocks in the Central pool as of July 1 were higher at 30.15 mt compared with 28.51 mt a year ago. Rice stocks, on the other hand, are at 25.44 mt against 31.77 mt. Unmilled paddy stocks are a tad higher at 23.3 mt (15.72 mt of rice) against 23.15 mt (15.62 mt of rice). The stocks are at their lowest since 2017. 

Inadequate quota

According to traders, flour mills in South India are getting wheat between ₹2,700-2,800 a quintal from traders, while FCI is delivering at ₹2,200. The weighted average price of wheat across various agricultural produce marketing committee (APMC) yards is currently ₹2,297 against the minimum support price of ₹2,125. 

Though the Centre has begun offering wheat under the Open Market Sale Scheme to mills, millers say the cap of 100 tonnes per week is inadequate given the daily capacity of mills ranging over 200 tonnes. 

“We will face problems only when we will be required to import. We might have to pay more as generally when India imports, global prices tend to rise,” the trade source said. 





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