In Commodity News 22/02/2016
Egypt, the biggest wheat importer, is starting to find out what one of its smallest neighbors knew months ago: You can’t buck the market.
The most populous Arab nation has seen wheat prices jump, prompting Egypt to scrap three tenders in two weeks, since it tussled with traders over the quality of grain they supply and turned away a French ship it said was contaminated with fungus.
The experience of nearby Jordan suggests things may get worse. With barely a 10th of Egypt’s 88 million people, the country has struggled for months tosecure supplies as sellers withdrew or sought above-market prices to compensate for increased risks after it rejected a Polish cargo last year.
Both Middle Eastern nations rely on imports to feed their people. Egypt’s General Authority for Supply Commodities spends billions on wheat each year for subsidized bread in an economy hit by shrinking tourism revenues. Without a resolution it may struggle to buy the more than 1 million tons it needs before July. Jordan, host to more than a million refugees fleeing conflict in Syria and Iraq, also uses foreign grain to provide cheap bread.
“Everybody used to chase GASC business, and now you are seeing fewer and fewer offers,” Hakan Bahceci, chief executive officer of Dubai-based trader Hakan Agro, said Wednesday. “We have seen Jordan face the same problems, with almost no participants in its tenders for a long time,” he said. “Every restriction you impose on sellers will have a price.”
Jordan said in October it lost $7 million on the 50,000 metric ton cargo of Polish wheat it rejected, claiming the grain failed to meet its specifications and had to be resold at a lower price. The country has repeatedly canceled or extended deadlines of tenders for the grain in recent months as traders balked at participating in case ships were turned around.
Prime Minister Abdullah Ensour was dragged into the standoff, meeting with importers in December to discuss shipping rules, but the country is still paying higher prices than its neighbors.
In its most recent successful tender on Tuesday, Jordan agreed to pay $203.75 a ton for European and Black Sea wheat, including shipping costs. That’s more than the $190.88 Egypt paid for Romanian wheat in a tender Friday, and compares with prices of about $179 paid in recent weeks by Algeria and Tunisia, which spend less on freight. Jordan usually buys hard wheat, which is of higher quality.
Milling wheat for May delivery in Paris slid 0.3 percent Thursday to 160.25 euros ($177.70) a ton on Euronext.
Legal Proceedings
Egypt, like Jordan, has sought to reassure traders. The Agriculture Ministry, which sparked confusion this year by declaring a zero-tolerance policy for ergot, the naturally occurring fungus found in the rejected French shipment, later rescinded its statement and said Egypt would accept a level of 0.05 percent in shipments, in line with global and long-held GASC standards.
Still, uncertainty remains. Bunge Ltd. said last week that it started legal proceedings to challenge Egypt’s rejection of the 63,000-ton cargo of French grain, denying the country’s claim that the ergot level was above the maximum allowance. Egypt also rejected a Canadian cargo for a second time, even though its ergot level fell below the 0.05 percent requirement, according to a trader at a Cairo-based firm familiar with the matter who asked not to be identified because the information isn’t public.
The Agriculture Ministry again this week stated that the 0.05 percent ergot level should be acceptable, according to a copy of a letter to GASC obtained by Bloomberg on Wednesday. GASC Vice Chairman Mamdouh Abdel Fattah and ministry spokesman Eid Hawash weren’t immediately available for comment on the latest developments in Egypt’s wheat tenders.
Diversifying Sources
The lack of clarity is translating into higher prices. French wheat offered in a tender last weekend, which was eventually canceled, was almost $15 more expensive than the port price in Rouen, the highest premium this season. Since this season began July 1, GASC has bought about 3.7 million tons in international markets, the slowest pace in three years.
Egypt is now trying to diversify its wheat sources outside the tender system and has been talking with suppliers including government bodies and multinational companies, Supply Minister Khaled Hanafy said in an interview this week.
In a world awash with record supplies of wheat after bumper global harvests, traders need to sell, but so far they’re still wary of rejections in Egypt.
“If this continues, GASC will get less offers and much higher prices,” said Hesham Soliman, president of Alexandria-based Medstar for Trading. “Traders will charge a hefty premium because of the high risk dealing with Egypt now involves.”
Source: Bloomberg
