By Thabile Nkunjana
"UNBELIEVABLE," say AgriCensus market analysts in response to the Indian government's unexpected statement on Saturday, May 14, barring wheat exports. India’s ban on wheat exports came as a surprise because of the abundance of wheat supply from India, Australia and the US. A few weeks ago it looked improbable that any of these countries would prohibit exports, but in astonishment, India did so.
The US Department of Agriculture (USDA) anticipated lower wheat output for the current crop season in its latest May 2022 report, owing to tiny crops from Ukraine, Morocco, Argentina, the EU and China. Consumption, on the other hand, is expected to climb due to population growth, with trade expected to reach new highs, fuelled by imports primarily from Africa.
Egypt alone is expected to import around 11-12 million tons of wheat from Africa. It is estimated that India is supposed to export a record of 10 million tons of the total estimated exports of close to 200 million tons in the 2021/22 season.
In the midst of the current conflict in Ukraine, which has resulted in a limited supply of sunflower oil and wheat, India was seen as one of the saviours, sending much-needed wheat with Australia. This came amid projections of higher-than-normal export stock.
However, due to a severe heatwave that began in mid-March 2022 in India, wheat output forecasts have been lowered. The lowered output forecast and rising domestic wheat prices led India imposing embargo and restricting exports.
What does this mean for consumers in South Africa? The country requires around 1.4 million tons for the 2012/22 market season, which concludes at the end of September 2022. As of May 6, 969 984 tons of that total wheat have been imported, accounting for 65.8 percent of the total to be imported.
Argentina (253 998 tons), Lithuania (245 040 tons), Brazil (204 040 tons), and Australia (120 911 tons) are South Africa's top suppliers so far. For the time being, the remaining amount of roughly 500 000 tons is the biggest source of concern for South Africa, as India's move is expected to raise prices.
Also, it is reported that big millers bought wheat well in advance, but the smaller millers will experience difficulties putting bread on the shelves at these prices.
Domestic yields were assisted by favourable weather circumstances during wheat production, but because South Africa imports a significant amount of wheat, these events are anticipated to put upward pressure on already high prices.
India’s export prohibition is anticipated to affect global wheat prices. Another factor to be concerned about is China, which is an influential global importer with lower wheat estimates. The Chinese are currently in lockdown as a result of soaring Covid-19 numbers, but once the limitations are lifted, the country's re-entry into the market could put serious downward pressure on global wheat prices.
As a result of these factors, South African consumers may witness an increase in wheat prices in the second half of 2022, although this will be in line with global trends and market pressures. On Monday, May 16, the International Grain Council wheat sub-index was already up 63 percent year-on-year.
However, it should be noted that this is a developing issue with conflicting assertions from Indian officials. Government-to-government sales are expected to be permitted. This is aimed at preventing unnecessary wheat stockpiling, which puts vulnerable countries in worse situations. A similar approach has already been reported between Egypt and India with a sale 500 000 tons of wheat confirmed.
Due to present market uncertainty induced by drought, Ukraine crisis, and now trade distortions, global wheat prices are expected to remain elevated in the near to medium term. Presently, the world market doesn’t need further export bans or any trade restriction measures.
The world wheat balance sheet is showing an ending stock level of 267 million tons at the end of May 22, which is considerable lower when compared with 278.4 million tons reported at the end of April 2022. World prices spikes and South Africa followed.
* Thabile Nkunjana is an agricultural economist at National Agricultural Marketing Council.
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