Speculation shrouds grain demand, rejections from Egypt

The Nile River at Cairo. (CIA.gov)

CNS Canada — Egypt, the world’s biggest buyer of wheat, rejected three cargoes of the grain last week — its first rejections since it overhauled its inspection system and relaxed its import policy last fall.

Three cargoes of wheat — two Russian, one Argentinian — purchased by Egyptian grain buyer GASC were rejected last week at their ports of origin by inspectors citing quality issues.

Those rejections are the first under Egypt’s new inspection system, set up last fall after the country moved its ergot policy closer to international standards.

Egypt has increased its buying to the highest level this time of year since about 2012-13, according to data from news agency Bloomberg.

The country is trying to stockpile wheat, doubling its reserves from three million tonnes before the country’s harvest, expected in April, local media said, translating a statement from Egypt’s supply ministry.

That indicates the country is becoming savvy in purchases essential to its citizens as it accumulates stocks, according to one U.S. trader.

“They don’t want any bad cargoes. They want high-quality wheat that they can stockpile for a long time in their state reserves, and not have to worry about it,” said Terry Reilly, senior commodity analyst at Futures International in Chicago.

“In my opinion, they’re just getting more savvy in the way they buy wheat.”

Jay Roddy, editorial manager for the Tahrir Institute for Middle East Policy in Washington, D.C., sees other issues at play — “but it’s not quite clear what they are,” he said in an emailed statement.

“Wheat has featured heavily in Russian-Egyptian relations, but despite deepening ties, the Egyptian government has rejected several Russian cargoes,” Roddy said.

As a U.S. dollar shortage heated up last year, there was speculation that shipments were rejected so the government wouldn’t have to pay, and it’s not clear if that’s still an issue, he said.

The country has implemented a number of austerity measures, which caused domestic prices for food to soar, and the Egyptian pound to drop sharply.

However, those measures also set the country up to receive a multi-year US$12 billion loan from the International Monetary Fund (IMF), which may have propped up the country’s purchasing power.

On March 7, the same day as the cargo rejections, an Arabic hashtag emerged on Twitter, which translates to “supply uprising,” after the government made changes to its bread subsidy program, which feeds millions of Egyptians.

Protests were reported as news emerged about changes to the way bread rations are managed.

Reuters last year released a report which said in some cases bakers were overstating the amount of bread sold, at a heavy price to the government.

“The government seems to have backed down on one of the most substantial issues of the bread subsidy reforms — namely, the government is keeping intact the amount of wheat bakeries can buy on their ‘gold cards’ — in hopes of placating popular frustration with food prices,” Roddy said.

Though there are mixed reports on the rationale behind Egypt’s demand, the pickup in buying from Egypt has provided much-needed support to wheat futures at the Chicago Board of Trade and highlighted the affordability of U.S. wheat.

In a tender from Egypt on Wednesday, on a FOB basis, U.S. wheat was the most affordable offer.

“The U.S. is now a little bit more competitive against the world,” Reilly said, though when considering shipping and insurance, Ukrainian wheat beat out the U.S. at US$208 a tonne.

“But the fact that the U.S., on a FOB basis, was actually mentioned, is monumental,” he said.

He expects the wheat market to trade sideways moving forward, as any further decline in futures prices should be met with increased demand.

— Jade Markus writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Follow her at @jade_markus on Twitter.

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