By Geoffrey Smith
Investing.com -- Wheat prices surged to their highest in over two months on Monday, as India's decision over the weekend to impose an export ban further stoked fears of a global food crisis.
By 5:20 AM ET (0920 GMT), the front-month contract for U.S. Wheat was quoted at $1,231.90, up 4.7%, having stalled earlier just under the $1,250 level.
Indian exports had become an important stopgap source of supply to world markets in the aftermath of Russia's invasion of Ukraine, which disrupted shipments from two of the world's biggest exporters.
India, which was the world's eighth-largest exporter last year, had said only weeks ago that it expected to export a record 10 million tons this year after a bumper harvest.
However, the country changed its mind after a lengthy heatwave across much of the subcontinent drastically altered the outlook for the current harvest. The government forecast production of 111.32 million tons this year as recently as February, but Reuters reported local market sources as saying that the heatwave could reduce that to 100 million tons or less.
In addition, the surge in export demand has driven domestic prices sharply higher, stoking broader inflationary pressures and pushing the Reserve Bank of India to raise its key rate for the first time since 2018.
India will still allow exports to countries whose own food security is endangered, India’s Directorate General of Foreign Trade said in a statement on Friday.
It's the latest in a growing list of administrative measures taken around the world to cushion the impact of rising global prices in local markets. Kazakhstan and Serbia have already imposed quotas on their grain exports, while Indonesia has restricted exports of palm oil, a widely-used cooking oil in South Asia and a vital input for a broad range of consumer goods worldwide.
The tightness of the global wheat market has also been made worse by poor growing conditions in some of the world's most important growing regions. The U.S. Department of Agriculture has said that U.S. wheat exports are likely to fall to their lowest since 2015 in the current marketing year, which runs through May, not least due to drought across much of the plains states.
The USDA forecast last week that Ukraine's wheat harvest this year would likely fall by around one-third due to war disruptions.
The shortfall from the Black Sea region has put particular strain on the economies of North Africa, which import up to 80% of their needs from the two warring countries.