Wheat ETF Jumps After India Bans Exports

A wheat commodity-related exchange traded fund surged Monday after India banned exports of wheat in response to growing food security issues.

Among the better-performing non-leveraged ETFs of Monday, the Teucrium Wheat Fund (NYSEArca: WEAT) gained 4.3%.

Meanwhile, CBOT wheat futures were up 5.9% to $12.475 per bushel.

India's government suspended all overseas sales to maintain its own domestic food security, Bloomberg reports.

“Traders say that the new ban puts an additional strain on the world export market, considering that India was expected to be an alternative to Russia and Ukraine amid the ongoing war there,” Jack Scoville, vice president of Price Futures Group Inc. in Chicago, said in a note.

Even though India is not a prominent global exporter of wheat, the announcement's fallout in the wheat market reflects the tight state of supplies. The Russia-Ukraine war has upended Ukraine's wheat exports while weather-related problems like droughts, floods, and heatwaves have decimated crops in other major wheat-producing countries.

“If this ban occurred in a normal year the impact would be minimal, but the loss of Ukraine volumes exacerbates the issues,” Andrew Whitelaw, a grains analyst at Melbourne-based Thomas Elder Markets, told Bloomberg.

India halted export following a record-breaking heatwave that withered crops over a crucial growing period, which have contributed to projections of a falling yield count. India's supplies due to a potential output shortfall further exacerbated its outlook as the emerging economy tries to fill the gap from Ukraine's exports.

Politics may have also contributed to New Delhi's decision to ban wheat exports. Prime Minister Narendra Modi has been tackling the country's surging inflation, an issue that toppled the previous government's grip on power and paved the way for his own ascension.

India will only export to countries that require wheat for food security needs and based on individual government requests, along with meeting irrevocable letters of credit that have already been issued.

“Even after making these adjustments, the government might not have enough wheat to meet its annual requirement,” Citi analysts said in a note.

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