India's ban on wheat exports has delivered a fresh blow to world markets already reeling from tight supplies due to output issues in traditional export powerhouses Canada, Europe and Australia and snarled supply lines in the war-torn Black Sea area.
Benchmark wheat futures in Chicago jumped by their 6 per cent limit on Monday (May 16) as markets reacted to the ban announced over the weekend, igniting alarm among trading firms and importers who had been banking on millions of tonnes of Indian wheat being available for shipment over the coming months.
Below is a brief explainer on what's at stake for the world grain markets.
WHY DID INDIA BAN EXPORTS?
India was initially eyeing as much as 12 million tonnes of wheat exports in 2022/23, significantly higher than last year's record exports of 7.2 million tonnes.
After harvesting five consecutive record crops, New Delhi was hoping a sixth crop would be even higher at 111.32 million tonnes.
But a heat-wave during a crucial crop development phase dented yields, forcing the government to cut its output estimate to 105 million tonnes.
Lower output coupled with strong export demand then pushed local prices higher, often above the government's fixed procurement price.
That prompted farmers to sell wheat privately instead of to the state, whose purchases to run welfare schemes slumped due to tight supplies.
HOW IMPORTANT IS INDIA TO WORLD MARKETS?
India is the world's second largest wheat producer behind China, but rarely exports much grain due to high government-subsidized domestic prices and massive domestic food needs.
However, improved seed selection and farm management over the past decade had put the country on course for a new record crop this year, opening the door to an export boom just as global crop markets really needed extra supplies.
Indian wheat exporters had eyed sales of up to 12 million tonnes in the 2022/23 season, which would have placed India as the eight largest exporter, not far behind Canada with a projected 15.5 million tonnes.
Top destinations for Indian exports included Bangladesh, Indonesia, Nepal and Turkey, and top global buyer Egypt recently agreed to make a first ever purchase of Indian wheat as Cairo tried to replace lost shipments from the Black Sea.
WHO ARE OTHER KEY WHEAT EXPORTERS?
Russia, Europe, the United States and Canada are traditionally the top global wheat exporters, and accounted for roughly 60 per cent of world wheat exports from 2015 through 2020, according to the US Department of Agriculture.
However, each has faced significant wheat crop setbacks in recent seasons, with their collective export share dropping to only 50.7 per cent in the 2021-22 season, mainly due to drought in North America and Europe.
This year's export tonnage had been expected to recover until Russia's invasion of Ukraine - a fellow major wheat producer and supplier - severed shipments from that region and sparked a scramble by major buyers to find replacement supplies.
Australia is slated to be the third largest wheat exporter this year, but suffered some quality deterioration in certain areas just before harvest and has already sealed deals on a majority of exportable volumes.
WHO ARE THE TOP IMPORTERS?
Over the last three seasons, Egypt, Indonesia, China, Turkey and Algeria have been the top five wheat importers. Other major importers include Bangladesh, Morocco, Nigeria and Brazil.
Since Russia's invasion of Ukraine threatened to block wheat supplies from the Black Sea, big buyers in Africa and the Middle East have struggled to find replacements, since most alternative exporters do not begin this year's harvest until June.
The exception this year had been India, which wrapped up its main wheat harvest this month and so had a rare abundance of fresh wheat inventories.
WHAT HAPPENS NOW TO INDIA'S WHEAT?
The sudden ban on exports means a majority of the new crop will now stay within India.
Trading firms that have already secured letters of credit to export grain will be allowed to proceed with those sales.
Remaining segments of the crop that had been expected to be exported will now need to be sold or stored domestically.
Local wheat markets have already started to react to the ban, with prices falling up to 2 per cent over the weekend in various spot markets.