During the weekend, there was one piece of news which I personally felt was bit alarming for everyone esp the global markets.
Indian Government bans export of wheat
Because of the sharp rise in global prices, some farmers were selling to traders and not to the government.
This got the government worried about its buffer stock of almost 20 million tonnes – depleted by the pandemic – needed for handouts to millions of poor families and to avert any possible famine.
Excerpt from the below article :
This decision led to wheat prices hitting record highs in European markets.
Exceptions
The export will be allowed in the cases where Customs Department had already received the consignment for examination on or before May 13.
Exports to Egypt, that are loading at the Kandla Port, Gujarat. The Egyptian government has reportedly requested the Indian government to allow the export.
Where prior commitment has been made through a Letter of Credit.
Where prior permission has been granted by the Government of India, on request of the governments of the respective countries.
My Takeaway
Inflation is not gonna end anytime soon and feels like the worst is yet to come esp. when it comes to food inflation.
With Russia being one of the biggest wheat producer, it is going to be a long battle even if the war ends …to get back to normalcy as trade may not begin immediately with other nations.
Good monsoon becomes absolutely key for Indian wheat and other output when it comes to food material.
Poor countries may be the ones which are gonna be affected the most. Hopefully, countries like ours can help them out.
India is a poor country. The official poverty line is bit of a joke. It needs some upliftment. India has to take care of its massive and impoverished population. I was actually surprised that the govt tried to export it in the first place.
Wheat prices in India are also rising month by month. I think the government wants to control the price of wheat in the domestic market and it also helps the domestic manufacturer.
India contributes less than 1% to global wheat exports and we have massive reserves.
Also india wheat does not global wheat standards.
remember, India had to beg egypt to place a buy order.
India’s ban is of no consequence to global wheat prices.
With oil rich countries, cutting down production to flare up the prices, many companies in europe shutting down due to high energy prices and potentially high local prices due to crop losses leading to export ban of food items, things are looking extremely grim currently.
Markets may appear strong optically but underlying fundamentals currently are extremely fragile.
These are things at national and international level, and if these happenings are not news, there will be always be modifications, negotiations, mitigations and contingency plans, and markets know this. Nothing new here.
Food shortages, oil production, commodities rising, inflation, these all are age old problems, so if and when they do make an impact on economy, markets will surely react.
But to make our investment or trading based on these is not recommended, we go along with the market, because these are beyond any single person.
As markets are interconnected, and almost all news will be in public domain within seconds, and on social media, there could be knee jerk reactions, and along with short sellers, now we have computers which trade, so the initial reaction will be quick and deep.
If the effects are long term, which last for months, then we could see those reactions turning into a sell off.