Biggest Wheat Buyer Seen Sowing Confusion, Reaping Higher Costs

June 13, 2016 06:36 AM

Egypt looks set for another season of expensive grain.

Traders are casting a wary eye on the largest wheat importer after it again turned away cargoes because of fungus in shipments. Many boycotted Egypt’s international tenders earlier this year after similar rejections, and conflicting statements on what level of the naturally occurring ergot fungus it allowed.

The latest events, just weeks before the new marketing season starts July 1, mean traders may again balk at joining tenders, or charge premium prices because of the higher risk, said Alexandre Boy, an analyst at Agritel in Paris.

"Today, I wouldn’t take the risk of selling a 60,000 tons vessel and guarantee zero ergot," Philippe de Raynal, chief executive officer of Axereal, the biggest French cooperative, said in an interview in Paris on Friday. "We need a clear position from Egypt to be able to do normal business."

The Agriculture Ministry on Sunday confirmed it will apply zero tolerance for ergot, which can be toxic in large amounts, until the government completes a study of risks. State-run grain buyer General Authority of Supply Commodities on the other hand said it will accept 0.05 percent ergot in shipments. Egypt buys local and imported wheat for subsidized bread for its citizens.

Great Interest

"News that Egypt will keep their ‘ergot-free’ stance will make their next tender of great interest, if they receive any offers at all given the current weather outlook," U.K.-based trader Gleadell Agriculture, owned by France’s Invivio and Archer-Daniels-Midland Co., said in a report e-mailed Thursday.

Export prices for wheat have climbed in recent weeks in both France and Russia, two major exporters, amid concern that excess rain in both countries will erode crop quality or hurt yields.

Egypt hasn’t issued an international tender for wheat since mid-April, a contrast with the past two years when purchases for the new marketing season had already begun, according to Bloomberg records. Its farmers are wrapping up the harvest and government purchases of local wheat are above target.

“It will be harder for Egypt to buy and they will need to pay more" unless it clarifies its policy on ergot soon, Agritel’s Boy said in an interview in Paris on Thursday. After the ergot issues earlier this year, only a few companies were participating in the tenders, he said. "We will have the same issue."

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