Winnipeg, March 17 – The world’s biggest buyer of wheat, Egypt, rejected three cargoes of the grain last week, the first time since overhauling its inspection system and following laxer import policy.
Last week, inspectors rejected three cargoes of wheat purchased by grain buyer GASC at the port of origin, two Russian and one Argentinian, citing quality issues.
Those rejections are the first under Egypt’s new inspection system, which comes 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 to 2013, data from Bloomberg said.
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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, one U.S. trader says.
“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.”
However, Jay Roddy, editorial manager for Tahrir Institute Middle East Policy in Washington, DC, says there are 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 via email.
He added that 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.
The country has implemented a number of austerity measures, which caused domestic prices for food to soar, and the Egyptian pound to drop sharply. But 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.
Middle East Eye reported protests as news emerged about changes to the way bread rations are managed. Last year, Reuters released a report which said bakers in some cases 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 America’s wheat.
In a tender from Egypt on Wednesday, March 15, on a FOB basis, U.S. wheat was the most affordable offer.
“The US is now a little bit more competitive against the world,” Reilly said.
Though when considering shipping and insurance, Ukrainian wheat beat out America at US$208 a tonne.
“But the fact that the U.S., on a FOB basis, was actually mentioned, is monumental,” Reilly said.
He added that he expects the wheat market to trade sideways moving forward, as any further decline in futures prices should be met with increased demand.
