A BAN on wheat exports by India, worsening crop condition in the US and the ongoing fallout of the Ukraine war have combined to push world grain prices to near record levels as concerns about food security continue to mount.
Both the Chicago and Kansas wheat futures exchanges in the US along with the MATIF exchange in France traded limit up on Monday, rising the maximum possible amount on the back of the news that India would not export any more grain and a worsening situation in the US hard winter wheat belt.
And unlike previous rallies in world markets Australian grain prices followed suit, with cash bids for old crop APW wheat rising above a staggering $500 a tonne and new crop futures sitting at just under $500/t.
Commonwealth Bank commodity analyst Tobin Gorey said the Indian ban was a key reason Australian cash prices had risen so rapidly.
"India was a competing exporter into several areas buying Australian wheat so without that competition the price has risen in line," Mr Gorey said.
He said Australia's supply chain would be the natural impediment to prices rising further locally.
"If there is not sufficient shipping capacity to take advantage of the current high prices then we start to see the northern hemisphere new crop coming online and that may compete with Australia."
Nick Carracher, chief executive at Lachstock Consulting, said the advent of the northern hemisphere harvest did not necessarily mean a drop in prices.
"We're still going to be factoring in that loss of supply out of Ukraine and Russia so even with demand rationing there is still going to be strong interest in grain supplies," Mr Carracher said.
The potential for grain shortages has raised the concern of world leaders with US secretary-treasurer Janet Yellen saying that something needed to be done to protect poor nations' food security, with discussions to take place about how any potential subsidy scheme to allow grain to continue to make its way to needy nations would work.
In particular there are worries around the food importing nations in the Middle East and Africa that traditionally rely on Russia and Ukraine for the bulk not only of their cereal requirements but for other food staples such as oilseeds.
After weeks of speculation India finally announced it would ban exports of wheat effective immediately to curb rising domestic food inflation.
However, the details of the ban are somewhat rubbery, with reports a 500,000 tonne sale to Egypt is still taking place and other suggestions India would still sell to nations short on supplies.
Mr Gorey said the frantic market reaction was to be expected.
"The first thing traders want to do is to get some sort of a hedge in place and that sent prices up."
"From here we'll see the trade taking a close look and seeing what it actually means, similar to the flurry of activity and then the more measured trade after Russia declared war on Ukraine earlier in the year."
Mr Gorey said the current situation was remarkable.
"We've got so many factors cutting supply, in any other year the news about the US crop condition would be headline news but it is just one of a range of factors driving prices up at present."
In its most recent World Agricultural Supply and Demand Estimates (WASDE) the US Department of Agriculture made some pessimistic rulings on the US crop, with key wheat states such as Kansas, Oklahoma and Texas all forecast to have poor to very poor seasons.
Rabobank grain and oilseeds senior analyst Cheryl Kalisch Gordon said the lack of supply could lead to demand rationing and overall lower consumption of wheat.
"The outlook shows 2022/23 may be the first year since 2012/13 in which the world has to consume less grain than the previous year," Dr Kalisch Gordon said.
"This is forecast to be a drop of only 0.1%, but that compares to average annual growth of 2.1% over the past decade," she said.
She said even with lower consumption the USDA data showed world stocks plummeting to their lowest levels since 2015-16.
Gregor Heard
Gregor Heard is ACM's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his 15 years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector.
Gregor Heard is ACM's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his 15 years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector.
