The strong outlook for wheat prices just got even stronger.

The problem for wheat buyers isn’t just the further dwindling in world inventories of the grain in 2022-23, as the US Department of Agriculture has forecast, but the expectation that this shrinkage will be focused on major exporters (as GrainPriceNews highlighted last week).

India’s announcement that it is to ban wheat shipments only heaps extra pressure on the suppliers still open for business.

Out of India

India – while not itself counted in the major exporter group, given its inconsistent presence on the world market – had been expected to take significant grunt work in trade.

Its exports would in 2022-23 have reached 8.5m tonnes, the USDA forecast. (That was based on a harvest estimate of 108.5m tonnes, which many investors consider unrealistic given hostile weather which has pushed with some crop estimates below 100m tonnes).

That lost 8.5m tonnes will likely have a large impact on prices, beyond that which might be considered given that it represents less than 5% of world trade.

Rationing time

It is far too big a volume under the current supply circumstances to ask the major exporters – Argentina, Australia, Canada, the European Union, Russia, Ukraine and the US – to pick up.

Even before India’s announcement, the top exporters were expected to see their stocks tighten over 2022-23 by 0.7 points to the equivalent of 6.8% – representing the snuggest balance sheet since 2007-08, when Chicago wheat futures, the world benchmark, set their record highs.

Taking even half the lost Indian volumes would reduce that ratio to the levels of 15 years ago.

The wheat market needs further to ration demand, which means further upward pressure on prices.

Price outlook

How much pressure depends on factors including the length of India’s export curbs, and how high-profile harvests compare with expectations.

Australia’s production, for instance, might beat the 30.0m tonnes that the USDA foresees, if the current growing conditions set a trend, although the signs are not so supportive for the likes of France and the US.

It also depends on demand factors, including whether fears of a world economic slowdown mount, but also the ability of rival crops, and notably corn, to steal demand for wheat in, for example, livestock rations.

Even since last week’s USDA data, which GrainPriceNews forecast would lead to outperformance of wheat futures over those in rival grains, the Chicago wheat futures’ premium over corn has soared by a further 20%, December basis.

But, with world corn supplies hardly ample, especially before Brazil’s safrinha harvest is in the bag, it looks like wheat futures have further buoyancy ahead. The time will come to make a killing by shorting wheat but, without an economic shock, it still looks beyond the horizon.